Frequently Asked Questions

Saving solutions comprise of debt mutual funds. These funds invest in fixed income instruments such as government and corporate bonds as well money market instruments.

By and large, these funds are best suited for investing for short to medium. This can range from 1 day to a year for short term and up to 3-5 years for medium term, depending on thetype of specific debt fund.

If you are looking for an investment avenue that can help you earn returns at a lower risk and with a lower time frame than equity, then these funds can be the solution for you. They are suited for investors who are looking for relatively fixed returns at lower levels of risk and high liquidity.

Yes, these funds do have scope for capital appreciation. This is possible when interest rates fluctuate in the market. To illustrate, suppose a Debt fund has invested in a bond which has a fixed 9% coupon rate for 3 years, if the interest rate falls in the market – then newer bonds issued would be at lower coupon rate. This would result in a rise in price of the bond which carries a higher rate than the market coupon rate.

Gilt funds, which are a type of debt funds investing entirely in government securities. As these are backed and guaranteed by the government, they do not carry any risk of default of principal repayment i.e.: no credit risk. They still however may carry limited interest risk.

Debt funds are less volatile than equity-based funds, yet they do carry some degree of interest rate risk and credit risk. Interest rate risk is the risk associated with reduction in price of debt securities due to changes in market interest rates. Credit risk indicates risk of default of principal repayment – this is impacted by credit quality of the investment.