There are various types of debt funds that are available in the market with varying maturity periods. Depending upon the investor’s requirements the funds can be chosen. The short-term debt funds carry high liquidity whereas funds whose maturity period extends for up to 10-15 years or even beyond, have low levels of liquidity.
Debt assets definitely provide a better level of overall portfolio growth since they provide adequate capital protection in comparison with investments in equities. Debt funds, as mentioned earlier, come under various tenors. If you wish to invest in debt funds for a period of less than 6 months then short-term debt funds and ultra short-term debt funds are best for you since they provide you 8.5-9.5% interest on your funds. They provide you high liquidity wherein you can enter and exit funds as and when you require. But what you need to be watchful the exit loads which certain funds might carry. If your investments are in the period of a minimum of 6 months to 1 year, short-term liquid funds can be suggested as they provide interest as high as 9%-12% on your deposits. Fixed Maturity Plans (FMPs) and Fixed Deposits (FDs) can be utilised if you are looking for an investment for a year or two. Comparing to FDs, FMPs provide better tax gains along with interest rate benefits. However premature exit from these funds come at a cost. Investments for a minimum period of 2 years and a maximum of 5 years can be invested in Bonds and non-convertible debentures. These assets provide interest at the rates of 9-11% per annum and can considerably benefit your investments. Apart from these investment tenors, if you still want to think of higher investment tenors, Public Provident Funds (PPF) and Employee’s Provident Funds (EPF) can do you good since these investments come with tenors of 15 years or more. They not only provide better returns but also ensure that you enjoy tax benefits provided by the same.
If you are looking forward or have invested in such assets it is advised that you continue investing in them. But what you need to know is that these assets do not have high liquidity and are quite strict with their lock-ins. Liquidating funds from these assets is not very easy. Therefore it is important for you to stash away funds in the funds like Emergency Funds. The emergency funds can include savings bank account, short term funds etc which can be liquidated in a maximum of 48-72 hours. These funds can definitely help you in cases of emergencies without you having to liquidate funds from these long-term assets. Not only will you lose the opportunity of better returns, the overall returns of your portfolio are reduced due to the exit loads and various other penalties that might be imposed. In cases of emergencies, if you are not able to liquidate these assets, the only option left will be to buy a loan. Now in these rising interest rates scenarios buying debts like loans can increase the burden on your finances. Therefore to save yourself from any such credit risks’, it is better if you could park your funds in assets which can come handy in case of emergencies.
A comprehensive medical cover that can comprise of a general Health Insurance cover along with a critical illness cover can provide you complete medical protection in case of medical emergencies. Investments into pure term life cover instead of various other insurance covers like money back endowment plans, or ULips etc, can also be beneficial. Although the main aim of all these policies is to provide protection, the protection is not ample enough and they are quite expensive in comparison to the pure term life covers.