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simplified
Debt Funds Simplified
contents
Introduction.........................................................................................2
What is debt fund...............................................................................2
How debt funds work ........................................................................3
Gilt funds, short- and long-term funds............................................5
How is it different from other MFs...................................................9
Why invest in debt MFs..................................................................10
Watch out.......................................................................................... 11
Who should invest in debt MFs...................................................... 11
How to pick the right debt fund..................................................... 12
Debt fund investment options........................................................16
Using debt funds for STP and SWP..............................................18
Using debt funds for specific goals................................................19
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Debt funds
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If you want to avoid the choppy markets and the erratic
returns, consider investing in debt funds
I
t’s time to bid goodbye to traditional fixed income prod-
ucts and, instead, embrace debt funds to achieve your
financial goals. If you prefer steady returns and low vola-
tility, debt funds can take you a long way.
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Debt Funds Simplified
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Debt Funds Simplified
WATCH OUT
Choose the appropriate option in debt funds depending on
your tax bracket as dividend is subject to dividend distribu-
tion tax, which decreases returns. You can opt for a dividend
reinvestment option for better post-tax returns if you are in
the highest tax bracket. Else, go for the growth option.
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Debt Funds Simplified
perhaps, even fills them up for you. He also helps you submit
these to the respective mutual funds besides fetching your
account statements directly from your mutual fund. But
for all these services you are charged a transaction fee of
`100 (`150 for the first-time investor) for an investment of
`10,000 or more.
Online agent. If you prefer transacting from the comfort
of your home or office, you can reach out to various online
brokerages. These work with three types of accounts—In-
ternet trading account, demat account and savings bank
account with a partner bank. For a price, online brokerages
enable transactions in several instruments, such as shares
and gold, besides mutual funds.
Direct application to fund house. If you wish to apply to
a mutual fund directly, submit your application form along
with necessary documents at the mutual fund’s office or at
any point of acceptance (PoA) across the country (a list is
available in your scheme’s offer documents). Note that di-
rect application forms should be collected only from official
centres. Make sure the box for agent code on the top of your
application is not left blank. Write ‘Direct’ in it when you
submit the form to your mutual fund. Transaction charges
of `100 or `150, as mentioned above, are not imposed on
direct applications.
Fund’s website. Another way for direct investment is
through your mutual fund’s website. As this option is only
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Debt Funds Simplified
short- to long-term bond and gilt funds would bode well. But
if interest rates remain flat or move upwards, stick to liquid
funds; they are safer than the rest of the debt schemes, if not
the safest of all financial instruments, and they would still
earn you more than your savings bank account.
The ideal way to build an adequate corpus for your child’s
future is to go step by step. The sooner you start, the better.
Of course, you also need to stop along the way occasionally
to make sure things are going as planned. The closer you get
to your destination, the more careful you need to be that you
are not taking a wrong turn.
Role of debt fund in retirement portfolio. As you age, light-
en your equity funds holdings marginally; the aggressive in-
vestor should cut equity in his portfolio from 80 per cent to
70 per cent, and the conservative investor from 60 per cent
to 40 per cent. With about 15 years away from retirement,
you should start playing steady and balance your exposure
to debt and equity. For instance, the conservative investor
may choose a 10-20 per cent higher debt allocation. On
the debt side, you may look at floating-rate funds and fixed-
maturity plans. Balanced funds are another option for the
semi-aggressive investor to strike a debt-equity mix.
Strategy. Follow the life stage approach to investing while
saving through mutual funds for retirement needs. As you
age, keep balancing the allocation between equity and debt.
With around 10 years away from your retirement, your pri-
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DISCLAIMER
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS,
READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
As part of its Investor Education and Awareness Initiative, HDFC Mutual
Fund has sponsored this booklet. The contents of this booklet, views,
opinions and recommendations are of the publication and do not necessarily
state or reflect views of HDFC Mutual Fund. HDFC Mutual Fund does not
accept any liability arising out of the use of this information.
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