Debt Mutual Funds invest in treasury bills, government securities, Certificate of Deposits (CDs), Commercial Papers (CPs), bonds, money market instruments and many more. The credit quality of these underlying instruments are measured in terms of ratings. The debt funds One should hold them for 3 years to get the benefit of long term capital gains....on debt funds long term capital gains tax is @ 20 % after taking into account indexation.
The debt funds though much safer than equity funds,they are not zero risk....it's return fluctuates as per the RBI interest rates policy....in reducing interest rates, the return goes up and in upwards interest rates regime,the return goes down...they give a rate of return of 7-9 % but are more tax efficient than Bank FDs and RDs.There are ways of paying much lower taxes than taxes on FD interest....but will write about it some other time.
Good Debt funds are HDFC High interest fund,Birla Sunlife floating rate fund.
Liquid fund is a type mutual fund that invests money in Bank Certificate of Deposits, Bank Fixed Deposits, Treasury Bills, Bill Rediscounting, Commercial Paper, Collateralised Borrowing & Lending Obligation and other debt securities with maturities up to 91 days...liquid funds don't have entry and exit load and they calculate their NAV on all 365 days including Sat/Sundays and holidays...
Liquid funds are much safer but they give 6-8 % pa returns. One can enter and exit from liquid funds any time....many corporates park their funds in liquid on weekends.
Good liquid funds are ICICI Prudential Liquid fund,HDFC Liquid fund,Reliance Liquid fund.
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