But before delving into the details of what to know before choosing a debt fund, one needs to understand what a debt fund is and how it works.Simply put, debt funds are mutual funds that invest the investors’ money in fixed-interest generating securities, including government and corporate bonds, debentures, and other money market instruments. Debt funds are also often considered safer as opposed to the volatility that the equity market brings since debt funds come with lower risk albeit lower returns. However, debt funds held for more than a year will have a long-term capital gains tax of 20% and include indexation benefits.Considering the expense ratio prior to investing in a debt fund is imperative. These are the expense ratio of the mutual fund that investors will need to look out for before choosing a debt fund. However, in lieu of the debt, venture debt funds can gain a share of the equity stake in the company.

Source: Economic Times October 31, 2021 10:10 UTC