Investing is a long journey and usually, it is better to have a long term investment horizon. But before you go ahead and make any investment it is better to understand your investment objective so that you can spread your investments across various financial instruments. For example, if you have a long term investment goal, you may invest in traditional schemes like PPF or if you are investing to save tax, you may consider investing in Equity Linked Saving Scheme.
If you are someone who invests now and then, you may have come across mutual funds as an investment tool. For those who do not know, mutual funds are a pool of professionally managed funds where the fund manager implements an investment strategy and buy/sell securities in accordance with the fund’s investment objective. Mutual funds are further categorized based on certain unique attributes like risk profile, asset allocation, fund size, etc. While most people invest in equity mutual funds to meet long term investment goals, there are others who put their money in debt funds for meeting medium and short term goals.
In the past couple of years, debt mutual funds have been giving high returns because of which a lot of investors are left wondering whether they should invest in these for long term investment. But remember that just because debt funds have given higher returns in the past, they may not replicate the same in the future.
First, let us understand debt funds and how they work.
What are debt funds?
While equity mutual funds invest predominantly in equity related instruments, debt mutual funds allocate a large number of assets in fixed income securities like call money, corporate bonds, treasury bills, government securities, etc. Although one would always recommend you invest in equity mutual funds if you have a long term investment horizon, here are a few debt funds which you may consider investing in for the long run.
Medium duration funds
Medium duration debt fund must invest in debt and money market instruments such that the Macaulay duration of the portfolio is between 3 years to 4 years. It is an open ended short term debt scheme that invests in fixed income securities.
Long duration funds
Long duration debt fund is supposed to invest in debt and money market instruments such that the Macaulay duration of the portfolio is longer than 7 years. It is an open ended short term debt scheme that invests in marketable securities.
Gilt funds are considered to be a safe investment alternative for those seeking capital appreciation through mutual fund investments but do not have the appetite to take high risks. These funds invest in high rated government securities and bonds.
These are some of the debt funds you may consider investing in for meeting long term investment goals. However, financial experts would recommend you to invest in equity mutual funds for meeting long term financial goals. That’s because historically equity mutual fund investments have reaped higher profits when remained invested in the long run. So if you are an aggressive investor who doesn’t mind taking higher risks for better rewards, you may invest in equity mutual funds for the long run. But if you are someone with low risk appetite, yet want to invest in mutual funds for seeking long term capital gains, you may invest in the above stated debt funds.
However, if you are new to investing and completely oblivious to investment tactics, you may seek professional help. Understand that it is your heard earned money that you are investing and hence it is better to take professional advice and invest wisely.