Starting your career? Consider investing in debt funds

• Follow

For majority of young urban professionals who have started their careers, it is more about working hard than partying harder. At the starting level, salaries are often modest and it becomes challenging to save money when you live in a big city with so many distractions. Choosing where to put the limited savings that young people have at their disposal can be difficult. That said, it’s not possible to invest this short-term corpus in high volatility/high-risk investments, such as stocks. Investing in debt funds can be a good way for young professionals just starting in their careers to get their feet wet. Here are five explanations on why this is the case.

Irregular investments

Despite fancy phones and clothes, if you are starting your career, you don’t have much in the way of money, no idea how regular your investments are.

A debt fund is a wonderful place for him to begin investing as an amateur and learn about his income, expenditures, and saving habits.

Advantage of liquidity

Liquidity is the strongest point for debt mutual funds, and this is where they excel. Because the fund allows for withdrawals at any moment, it’s an investment option that can be tailored to suit the individual investor’s needs.

You can use the money to pay for college, start a business, or arrange a wedding. Some debt funds like short-term duration funds and long-term and medium-term duration funds have five months to one year tenure.

Growth aspect

Savings accounts, while offering liquidity, pay very little interest (4% per annum). Apart from providing liquidity, the debt mutual fund also offers a low-risk return of roughly 8% if held for over three years.

Further, if this investment is kept for more than three years, it becomes tax efficient due to indexation benefits. This is critical, as an increase in salary over the next three years will result in an increase in taxable income. Because of this, it’s a superior investment as compared to fixed deposits.

Emergency money

Debt mutual fund provides emergency money on hand in case of unforeseen circumstances. Young people want to spend money rather than save it. Because of this, setting up an emergency fund is tough. The debt fund would act as a savings account for when circumstances go tough.

Youngsters who want to achieve great things in their lives and develop a solid financial portfolio are likely eager to begin investing in debt funds, which are a good place for them to start.