Every investor aims at a favourable asset allocation, i.e. having an ideal mix of all kinds of assets in his/her portfolio, assets like equity, debt, gold, etc. This is done so that there is a balance maintained in case one of the
assets underperforms. Now, while equity mutual funds can give you a chance to create wealth over a long-term, debt mutual funds can provide you with relatively stable returns at a lower risk than equity funds. It can also provide
you with the diversification your portfolio needs, allowing your asset allocation game to be stronger.
When compared with traditional investment instruments, debt funds score in terms of liquidity. They are liquid because they do not come with lock-in periods and hence, you can redeem the investments whenever you want
with just a few clicks. Even returns from debt mutual funds on redemption prove to be more tax-efficient than most of the other instruments. Due to the indexation benefit, your returns are calculated not from the original value
of the investment but from an indexed value, thereby reducing the capital gain for the purpose of capital gains tax calculation. You can read more about the tax efficiency