How To Build A Strong Asset Portfolio With A Healthy Mix of Debt & Equity Fund?

By Subodh / December 30, 2015

Investment is a necessity for every professional, no matter what sector he or she is involved in. Most working professionals start investing in their 30s or 40s while some think of making an investment portfolio even in their 20s these days. Now, it is important to decide what type of investment you will make. Investing in shares is not something everyone can handle well and the stock market can be really volatile at times. Those seeking safer investment options often opt for mutual funds. Even when you decide to invest in mutual funds selecting the right type can be quite tedious!

Mutual Funds

Building A Strong Asset Portfolio With Mixture of Diverse Mutual Funds

If you want to invest securely and want maximum returns from investment, investing in just one bond may not quite cut it! While most people feel confused about whether they should choose debt fund or equity fund, you may invest in both types and obtain the benefits.

It is important that you learn salient features of both debt and equity bonds before investing in either type. Debt mutual funds offer fixed income yield and they are thought to be low risk. Examples include company debentures and government bonds. This does not denote these bonds ensure guaranteed returns – but the chances of returns are more certain. Debt bonds are better than FD because the former offers better tax efficiency.

Equity bonds are something you can deem as essential asset for long term growth of investment with inflation beating returns. These companies generally invest in company shares. The profit can be seen after a long term- say 7 years or more. When it comes to investment – not one solution can fit every individual. Investment planning for a person with an earning spouse and a kid may be different than that of someone who is the sole earning member in family with several dependents. It is prudent that you combine the investment on both sides to reduce the amount of overall risk.

Debt Mutual Funds

Factors To Think of When Choosing Between Equity And Debt Bonds:

  • Investment focus- If you want to generate income using your investments- choosing debt bonds makes more sense. It offers enhanced certainty of return. However, people seeking wealth creation should opt for equity bonds.
  • Duration of Investment –Investors should think of duration of the investment, before picking an equity bond. They may choose the timing of investing in such bonds while evaluating the time of maturity and how the expected return will fulfill their requirements at that time.
  • Expected return- It does not make sense to invest in any bond without having a clear idea about expected return! Keep in mind that returns from either type of bond come with varying uncertainty and risks.
  • Tax applicable– Equity bonds are mostly tax efficient and you have zero tax liability for holdings over a year. Debt funds, on the contrary attract capital gains tax -long term and short-term.

Where It All Leads To

It is also important that you keep an eye on the market scenario and start cultivating publications and online resources related to such investments. Investing in equity bonds, no matter how reputed the company is can always be a little risky. So, being knowledgeable on stock market trends and the country economy pays off for an investor. It is also important that you read blogs of leaders in these segments. There are several social media groups and forums where you will find experts on investment options. Their sights and tips can also help you in making better investments.