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Which mutual fund is better debt or equity?

Author

Sophia Bowman

Updated on March 13, 2026

Which mutual fund is better debt or equity?

Equity Mutual Fund or Debt Mutual Fund - Which is Better: Equity funds work well over long term while debt funds suit short to medium term goals. There are lots of factors to consider before deciding which category of mutual funds to invest in.

Considering this, what is the difference between debt mutual fund and equity mutual fund?

There are various types of funds, chief among these are equity funds and debt funds. The difference between the two comes from where the money is invested. While debt funds invest in fixed income securities, equity funds invest predominantly in equity share and related securities.

Subsequently, question is, is it good to invest in debt mutual funds? Debt funds are ideal for achieving short term financial goals: Debt funds can be suitable for meeting short term goals . Debt mutual funds have low risk ratio: Since these funds invest in fixed income securities, investing in debt mutual funds is considered to be far less risky.

Moreover, which debt mutual fund is best?

Top 10 Debt Mutual Funds

Fund NameCategoryRating
HDFC Credit Risk Debt FundDebt5 star
Nippon India Banking & PSU Debt FundDebt5 star
ICICI Prudential Credit Risk FundDebt5 star
Aditya Birla Sun Life Corporate Bond FundDebt5 star

What are 3 types of mutual funds?

There are four broad types of mutual funds: Equity (stocks), fixed-income (bonds), money market funds (short-term debt), or both stocks and bonds (balanced or hybrid funds).

What is Blue Chip Fund?

Blue chip funds are equity mutual funds that invest in stocks of companies with large market capitalisation. These are well-established companies with a track record of performance over some time. Blue Chip is commonly used as a synonym for large cap funds.

Is debt Fund better than FD?

Why are debt funds better than fixed deposits? Debt funds are tax-efficient as compared to fixed deposits. It makes it tax-efficient as compared to bank fixed deposits. Debt funds are tax-efficient as compared to bank FDs if you fall in the higher income tax bracket and have an investment horizon above three years.

Which is highly risky debt or equity?

It starts with the fact that equity is riskier than debt. Because a company typically has no legal obligation to pay dividends to common shareholders, those shareholders want a certain rate of return. Debt is much less risky for the investor because the firm is legally obligated to pay it.

Why is debt preferred over equity?

Reasons why companies might elect to use debt rather than equity financing include: Debt can be a less expensive source of growth capital if the Company is growing at a high rate. Leveraging the business using debt is a way consistently to build equity value for shareholders as the debt principal is repaid.

Is debt mutual fund risk free?

It's true that Debt Funds are less risky compared to Equity Funds but that doesn't mean Debt Funds guarantee that your money will never face any loss. Debt funds invest in debt and money market securities that are prone to different kind of risk factors as compared to equity funds that invest in stock market.

Which is the best short term debt fund?

Mutual fund5 Yr. Returns3 Yr. Returns
Kotak Banking and PSU Debt Fund - Direct Plan - Growth8.41%9.27%
ICICI Prudential Short Term Fund - Direct Plan - Growth8.54%9.25%
Aditya Birla Sun Life Short Term Fund - Direct Plan - Growth8.35%9.21%
Aditya Birla Sun Life Corporate Bond Fund8.28%9.17%

How do I choose the best debt fund?

Parameters to Pick the Best Debt Fund
  1. Average Maturity/Duration.
  2. Interest Rate Scenario.
  3. Current Yield or Portfolio Yield.
  4. Credit Quality of Portfolio.
  5. Assets Under Management (AUM)
  6. Expense Ratio.

Which is best liquid fund?

The table below shows the top-performing liquid funds based on the past 3 and 5-year returns:
Mutual fund5 Yr. Returns3 Yr. Returns
JM Liquid Fund (Direct) - Growth Option7.64%7.13%
Aditya Birla Sun Life Money Manager Fund - Direct Plan - Growth7.01%6.91%
Aditya Birla Sun Life Money Manager Fund6.89%6.78%

Which is best SBI Debt Fund?

Top 10 Sbi Mutual Funds
Fund NameCategoryFund Size(in Cr)
SBI Magnum Ultra Short Duration FundDebt₹12,528
SBI Magnum Midcap FundEquity₹5,929
SBI Magnum Medium Duration FundDebt₹9,609
SBI Debt Hybrid FundHybrid₹3,978

What is bad about mutual funds?

However, mutual funds are considered a bad investment when investors consider certain negative factors to be important, such as high expense ratios charged by the fund, various hidden front-end and back-end load charges, lack of control over investment decisions, and diluted returns.

Is it a good time to buy debt funds?

For a medium-term investor, debt funds like dynamic bond funds are ideal for riding the interest rate volatility. When compared to 5-year bank FDs, debt bond funds offer higher returns. If you are looking to earn a regular income from your investments, then Monthly Income Plans may be a good option.

Which debt fund gives highest return?

The table below shows the best-performing debt funds based on the last 5-year returns:
Mutual fund5 Yr. Returns3 Yr. Returns
ICICI Prudential Constant Maturity Gilt Fund - Direct Plan - Growth9.12%11.35%
DSP Government Securities Fund - Direct Plan - Growth8.75%11.2%
ICICI Prudential Constant Maturity Gilt Fund8.91%11.14%

Is it good time to invest in debt funds 2021?

While yields at short-end remained well anchored due to surplus liquidity, yields of benchmark 3-, 5- and 15-year government securities increased between 45 and 60 basis points. However, yield of benchmark 10-year government bond, which is under RBI's watch, is up by around 25 basis points as on March 23, 2021.

Which mutual fund is best in 2020?

Top 10 Mutual Funds in India 2020
  • ICICI Prudential Focused Bluechip Equity Fund.
  • Aditya Birla Sun Life Small & Midcap Fund.
  • Tata Equity PE Fund.
  • HDFC Monthly Income Plan – MTP.
  • L&T Tax Advantage Fund.
  • SBI Nifty Index Fund.
  • Kotak Corporate Bond Fund.
  • Canara Robeco Gilt PGS.

Is it good to invest lumpsum in debt funds?

Well no, there is no need for an SIP because this money is meant to be invested in a debt fund where it is fine to invest in lump sum. You can invest in lump sum in any debt fund if you have a lump sum amount at your disposal. So that's why there is no need for an SIP investing.

Are debt funds tax free?

Long term capital gains upto Rs 1 Lakh is totally tax free. Short term capital gains (if the units are sold before three years) in debt mutual funds are taxed as per applicable tax rate of the investor. Therefore, if your tax rate is 30% then short term capital gains tax on debt fund is 30% + 4% cess.

Do debt funds give monthly income?

Monthly income plans are an investment option in which the investors receive a specific sum of return per month. The returns are generated after having invested for a few years. These plans are debt oriented schemes, wherein the investment is made in the mix of debt and equity instruments.

Is there any lock in period for debt mutual funds?

Unlike bank fixed deposits or recurring deposits, there is no lock-in period. While a few funds may impose a small exit load for early withdrawal, in general, there are no penalties when a mutual fund investment is withdrawn.

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Which mutual fund is better debt or equity?