Ask any market maven and they will tell you that for building a strong investment portfolio, you need to have a clear idea about your goals and the horizon for them. That forms the crux of investment choices.

Generally investment horizons are broadly classified into short, medium and long term goals. The idea is to invest in avenues which would generate returns that align with the capital requirement of your goals.

For goals which have a time span of less than five years, debt mutual funds make most sense because the idea is to minimize the impact of volatility and earn higher returns than what you would have got by simply letting your capital for the goal wallow in the bank account. In the short term, the impact of inflation movements will also be minimum and with debt funds you can easily match inflation as there would not be a need for your returns to outpace inflation. Debt mutual funds also carry a lower risk than equity mutual funds which makes them a better investment choice than equities.

Debt mutual funds also ease the riddle of trust, liquidity, and duration for investors. Debt mutual funds invest in debt instruments of reliable entities and afford you the flexibility of allowing you to withdraw and invest as per your convenience and generating returns that suit your short term objectives.

The benefits of the SIP route

With SIPs, you will be investing a fixed amount towards your debt mutual fund every month which will be one step closer to realising your goals. While SIPs in equity funds which are best suited for long term goals have enough time for capital appreciation, when it comes to SIPs in debt funds, it’s more about inculcating discipline. This way, the you don’t get a chance to spend the money, your savings are locked in and you develop the habit of investing diligently through the investment cycle.

SIPs also offer the huge advantage of rupee-cost-averaging and smoothen out the bumps of market cycles in the long run. When you invest at regular intervals you will end up investing at different prices created by varying market scenarios. When you invest every month via SIPs, you will be allotted units based on the debt fund’s current net asset value (NAV). If the NAV is low more units are allocated in proportion to the investment amount. When the NAV goes up, lesser mutual fund units are allotted. This way you average the costs at which you purchased units and acts as a buffer against market fluctuations. This also makes debt funds apt for medium-term goals for which the time horizon can potentially be longer.

For long term goals

The addition of the right mix of debt mutual funds in your portfolio will play a crucial role in helping you attain long term goals. While equities offer the potential of high returns, the high risk factor can make you portfolio overly exposed to market volatilities. Debt mutual funds bring stability and they can generate regular and steady returns that can limit the possibility of wealth erosion from your portfolio due to extreme market swings. Debt mutual funds also provide tax efficient returns, especially if you hold them for longer than three years as the benefit of indexation kicks in.

For information on one-time KYC (Know Your Customer) process, Registered Mutual Funds and procedure to lodge a complaint, refer to the knowledge center section available on the website of Mirae Asset Mutual Fund

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.