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 Content Editor

What life goals can I look at while I consider debt mutual funds?

Your life goals may vary depending on which life-stage you are in. If you are a young professional in your 20s, your long-term goals may not be very clearly defined yet, but you may have a lot of short-term goals to fulfil. On the other hand, in your late 30s, your plan may change considerably, given that your liabilities increase, and your long-term goals seem more important. Investing in debt funds can benefit you in every stage of life and for almost any kind of goal.


Debt funds are ideally used for short and medium-term goals but can be used for long-term investments as well by the risk-averse investors. They may not be able to create the amount of wealth that an equity mutual fund may give you an opportunity to create, but a debt mutual fund can be a relatively safer investment option if higher returns are not a priority. There are two modes of investing in debt funds Systematic Investment Plan (SIP) and Lumpsum. When you invest via SIP, you invest a pre-decided amount at regular intervals in the debt fund; whereas, when you invest via lump sum, you make a one-time investment in the fund.

Your choice of debt mutual funds is unique to your goals and should not get affected by what the world or other investors say about the debt mutual funds for lump sum investment or the debt funds for better returns. You should make your own decisions based on your customised needs with the help of a debt fund calculator.

Let us look at how to invest in debt funds effectively as per your various goalsYou can read more about the types of debt funds It might be relevant

Very-short term goals (< 1 year)
Goals like parking your funds for a short period of time because of excess cash or investing for your child’s annual school fee fall under this category. These goals will require you to have minimal risk associated with your investment, and hence, Liquid funds, Overnight funds, Ultra Short Duration funds or money market funds may be more ideal. The returns you receive from these funds are relatively more stable and may have high liquidity.

Short-term goals (1-3 years)
Buying a new car, saving for the down payment of your house, an international vacation etc. are the short-term goals we are talking about. You can invest in Short Duration debt fund, Corporate Bond fund or Banking & PSU fund. These funds have a higher return potential than the categories mentioned above. You can read more about achieving short term goals with debt funds, Here

Medium-term goals (3-5 years)
Marriage, creation of an emergency fund or a big function in your family can be a few examples of your medium-term goals. Here, because of the longer investment horizon, you may be open to a slightly higher risk exposure (if your risk appetite allows, and if it does, then Dynamic Bond fund and Medium Duration debt fund can be good bets for you. The dynamic bond fund invests across securities and changes its allocation as per the market scenario. Gilt funds that invest in Government securities are also apt for investors with an investment horizon of 3 years and above.

Long-term goals (5-7, >7 years)
Children’s education, marriage, etc. are the goals in this category. You can also invest in Long Duration debt Funds. These funds are more sensitive to interest rate changes due to a higher duration, hence being a bit higher on the risk. The dynamic Bond fund also is quite a popular fund in this category of goals.

Post Retirement

After retirement, your source of income stops, and hence, the risk appetite often drops. Thus, investors look for relatively safer options to keep their hard-earned money. A lot of investors might also prefer to transfer their investments from equity mutual funds to debt mutual funds. The second reason can be to initiate a Systematic Withdrawal Plan (SWP) from the debt fund. With the income gone, you WILL need to withdraw from your savings/investments, and SWP helps you with regular monthly income for your day-to-day expenses.

Park lump sum cash for equity investment

Another very common reason for investment in debt funds is to finally invest the funds in equity mutual funds. If you are planning to invest a lump sum amount and need to time the market, then you can park your funds in either a liquid fund or an overnight fund till the time is right to invest in equity; you can start a Systematic Transfer Plan (STP) from your debt fund to the equity fund. This allays the need to time the market. A debt mutual fund calculator always comes in handy in planning such investments.

It might be relevant here to mention that you can’t really match another investor’s debt fund portfolio because every investor is unique in his/her combination of goals, risk appetites, and investment horizon. Someone’s short-term goal may be your mid-term goal; likewise, someone’s best debt fund may not work for you at all. Hence, it is always better to evaluate your needs & requirements and decide your ideal portfolio rather than following someone else’s.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully

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