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Debt Funds Vs. Government Securities: Which Is Better For Seniors?

While choosing a low-risk investment instrument, seniors are sometimes confused about whether to invest in debt funds or choose the appropriate government securities. Learn more

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Amit Sethi
February 3, 2024
PFRDA Amended Rules

PFRDA Amended Rules

There are several investment options available in the market that suit the senior investor’s needs. Especially in the mutual funds, they have several varieties of funds within the debt fund category, offering seniors great flexibility to invest according to their requirements. However, there are some government securities also available in the market that offer a very handsome return. So, when choosing between debt funds and government securities, which one should a senior investor choose? Let’s understand the features and benefits of both investment options to know the best choice. 

Feature And Benefits Of Investing In Government Securities

Government securities are instruments offered by the central or the state government inviting investments by various entities. Government securities vary from each other based on their maturity period, return, liquidity, tax applicability, etc. Broadly, government securities can be divided into two categories, short-term government securities such as treasury bills, and long-term government securities such as bonds. One can invest in government securities through an open auction conducted by the Reserve Bank of India (RBI) from time to time or through the secondary market available via stock exchange platforms.

Also Read: Longer Accumulation Phase Provides Better Monetisation Capability: Vijay Chandok, MD and CEO Of ICICI Securities

As government securities are backed by the government, they offer a very high level of security. The return on government securities is guaranteed. Some of the government securities also offer tax benefits.

Before investing, you must check out the return offered by the G-sec, because they often lag behind the return offered by low-risk debt instruments available in the market.

Feature And Benefits Of Investing In Debt Funds

Debt funds are mutual fund schemes. They invest in the fixed return instruments to generate a decent return for their investors. Depending on the category of debt funds, they usually invest in the G-Secs., corporate bonds, money market instruments, etc. The returns offered by the debt funds are not fixed, however, they are linked to the market instruments, so they have the potential to provide a high return.

There are several varieties of debt funds and you may differentiate them based on the underlying securities in which they invest. As debt mutual funds are managed by highly experienced fund managers, they can offer a better return than choosing a specific debt instrument for investments.

As debt funds are market-linked products, they may sometimes become highly volatile.

Also Read: Govt Puts Light On ‘Viksit Bharat’ Roadmap: 7 Takeaways From FM’s Speech

Which One Should You Choose?

Seniors should choose investment products based on their financial goals, return expectations and risk appetite. So, the choice of investment may vary from one person to another. However, it’s important to focus on the diversification of the portfolio to lower the risk. Seniors may easily invest in the debt funds and also get redemption quickly, on the other hand, they may find it difficult to invest in the G-secs. When there is high inflation, return in fixed return instruments like the G-sec may not be sufficient, however, debt funds may still offer a better return as they are market-linked products. There are many G-sec products available in the market that may confuse seniors when they plan to invest in them. However, mutual funds are easy to understand and you can choose the appropriate fund based on your risk appetite and in sync with your financial goals.

The author is an independent financial journalist.

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