A member of the leadership team with over 17 years spent working at the
intersection of Investment Analysis, Personal Finance, and Technology.
Hands-on experience across multiple functions including Index Construction,
Index Maintenance, Asset Allocation, Portfolio Construction, Managing a
team of Digital Relationship Managers, etc
A member of the leadership team with over 17 years spent working at the
intersection of Investment Analysis, Personal Finance, and Technology.
Hands-on experience across multiple functions including Index Construction,
Index Maintenance, Asset Allocation, Portfolio Construction, Managing a
team of Digital Relationship Managers, etc
Bonds are fixed-income instruments that generate stable returns for investors. Furthermore, a bond issuer issues bonds for a predetermined duration and promises to pay regular interest.
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Debt mutual funds invest across various fixed income instruments to generate returns for the investors. Moreover, returns from debt funds vary based on the market prices of the underlying fixed income instruments.
Bonds vs Debt Mutual Funds
Following are the key differences between bonds vs debt mutual funds:
Basis of Difference
Bonds
Debt Mutual Funds
Definition
Bonds are debt instruments that companies or government institutions issue for a specific duration. The main purpose of issuing bonds is to raise money.
Debt funds are mutual funds that invest a significant amount of their assets in debt securities. For example, Corporate bonds, debentures, government securities, and money market instruments.
Returns
Bonds are fixed-income instruments. The bondholders receive regular income in the form of interest payments.
Debt mutual funds are not exactly fixed income instruments. They do however invest in fixed income instruments. Returns vary depending on the market price of the underlying assets.
Liquidity
After the bond issue, the bonds trade in the secondary market just like shares. However, the volumes are often low, making them a less liquid option.
Debt mutual funds are highly liquid, and you can exit your investments anytime. However, it is important to consider the exit load charges and tax implications.
Risk
The bond issuer is liable to make regular payments in the form of interest to the bondholders. In the case of solvency, the bondholders are given a preference for repayments. Therefore, no loss of principal amount if you hold until maturity.
Mutual funds are volatile investment options. Though stock market fluctuations do not directly impact debt funds, the interest rates and their movements have an impact on debt mutual funds.
Portfolio Management
The investor is responsible for choosing, buying and selling the bonds.
Debt mutual funds are managed by professional fund managers who take strategic decisions to generate significant returns for the investors.
Expense
No additional expense for investing in bonds.
Mutual funds are professionally managed, hence the fund house charges a certain fee for its service.
Accessibility
Bonds are not easily accessible. You can buy bonds over the counter, thus making it often difficult for retail investors to invest.
You can buy and sell debt mutual funds easily. You can buy it directly from the AMC or through distributors.
Sannihitha Ponaka is an MBA graduate from Symbiosis and has more than 5 years of experience in the financial sector. Following her dreams in the field of finance, she leverages writing to communicate the importance of investing. Your go-to guide to creating amazing and easily understood investment content.
Her forte lies in investment advisory and strategy with expertise in fundamental analysis and research.
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