Long Term Debt Funds !
Invest in long term Debt fund and reap the benefit with Indexation.
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Long term debt funds are a form of Debt Mutual Funds that invest in corporate Bonds and government securities with long-term maturities. The majority of the time, the average maturity of these funds exceeds 3 years. Therefore, these funds are appropriate for investors with a medium to long-term investment horizon, i.e., 3-5 years or longer.
Features of long Term Debt Funds
How long Term Debt Fund Work?
Debt funds buy corporate and government bonds and sell them at a margin.
Price difference affects fund’s NAV. Debt funds make money from debt securities. Debt funds that earn interest from fixed income assets are like bank Deposits. A debt fund gains daily interest. If interest is paid once a year, it’s split by 365 and the NAV rises daily. Bond prices fluctuate with interest rates. The debt fund’s security yields 10%. If the economy’s interest rate falls, new market instruments will provide lower rates. Your fund’s underlying instruments would have a higher coupon rate to match the lower rate, raising their costs. Your fund’s NAV will rise if the debt instrument appreciate.
Who Should Invest in Long term Funds?
If you can handle short-term volatility and plan to invest for a long time, consider long duration funds. Because it invests in longer-term bonds, it could outperform most debt funds.
only Long-term funds offer a larger return in exchange for variable interest rates. Invest in 3- to 5-year long-term funds. It may assist you attain financial goals in the coming years. Long-term funds acquire government and corporate bonds. It may also buy currency. Short-term coupon-focused debt funds are less volatile than long-term funds.
It returns more when investors expect interest rates to fall. Capital gains are added to interest income to beat most debt ETFs.
Things to Consider Before Investing in Long term debt Funds
Investment Goals
You can only invest in long-term funds if you can keep your money there for a long time. It might help you reach your financial goals in the next few years.
Risk profile
Long-term funds have more risk than most debt funds. It buys bonds with longer terms, which makes it vulnerable to changes in interest rates.
Return
Compared to medium duration funds, long duration funds may have a higher return. It invests in bonds that have a longer remaining maturity and could make more money if interest rates go down.
Expense Ratio
You might want to check the long duration fund's expense ratio. If the expense ratio is high, the return on the fund may be cut down.
Benefits of long Term Debt Funds
Stability
Flexibility
FAQ
You should invest in long-duration funds for at least five years since, long-duration funds lend for longer duration.
The tenure of loans of these funds means that investment is more or less exposed to the entire economic cycle, and hence these funds are inherently riskier than other Debt Funds.
