Debt vs. Equity Funds: Making Informed Investment Decisions

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If you are starting with your mutual fund investments, you should know the types of mutual funds. This article focuses on the two primary types of mutual funds. You can also discuss the same with a financial or investment advisor. This helps in knowing more about the types of mutual funds to invest in. The two types of mutual funds are debt funds and equity funds. 

Debt funds and equity funds are different from each other on various counts. There are also some similarities between the two types of mutual funds. By investing in either of the funds, you can save and increase your wealth. However, you must decide which is best for your income sources and savings. After reading this article, you may be able to decide whether to invest in debt funds in India or equity funds. 

What is a debt fund? 

A debt fund is a class of mutual fund investment that mixes debt securities, bonds and money market instruments in one place. Because people invest in debt bonds and equity stocks, they get a regular interest payout and increase wealth through investments in equity stock shares. However, the trick lies in the distribution of the funds across the two types of investment instruments. 

The distribution of invested money differs from one fund to another. Debt funds in India are very popular because you can get a regular income from interest and grow your wealth over time. A debt fund from a reputable asset management company is a good choice if you want to invest your money and balance your investments. 

What is an equity fund? 

Apart from the debt funds, there is also another type of mutual fund: the equity fund. Many active equity funds exist in India today, and many investors choose this investment vehicle. Equity funds invest in equities or stocks of other companies from various market caps. Equity funds are a pooled investment which  aims to help the investors benefit from the performance of the companies. 

The more the company earns and gains profits, the more the investors make through the equity funds. The equity funds have a fund manager who tracks and monitors the money invested in the funds. He also decides to sell or buy shares so that every investor of the fund makes a profit to the maximum extent. Equity funds in India are often the easiest way of investing in the stock market without much paperwork or calculations. 

Which one should you choose- Equity or debt? 

Both equity and debt funds are known to be good investment vehicles if you are clear about your investment goals. If you want to invest in stocks and increase your wealth, you can select equity funds to invest in. If you want to create passive income and wealth, choose a good debt fund to invest in. You can analyse your risk-appetite and financial goals when choosing between debt and equity funds.