Difference between Debt and Equity Mutual Funds
1. NATURE OF INVESTMENTS
Debt Mutual funds are funds which raise money from the public and then invest a major portion of this amount in various fixed income earning investments like Govt Bonds, RBI Bonds and other highly rated securities.
Equity Mutual Funds are funds which raise money from the public and then invest a major portion of this amount in stock markets.
2. TAXABILITY
Type of Fund | Period of Holding | Tax Rate |
Equity Mutual Fund | Less than 1 year i.e. Short Term | 15% |
More than 1 year i.e. Long Term | Tax Free | |
Debt Mutual fund | Less than 3 years i.e. Short Term | As per Slab Rates |
More than 3 years i.e. Long Term | 20% |
3. RISK
Equity Mutual Funds usually invest in Stocks and Shares and therefore they have an inherent risk attribute which is much higher than the Risk attribute of Debt Funds which usually invest in Fixed Income earning Investments.
4. RETURNS
As Equity Mutual Funds invest in stocks and shares, there is a good probability of higher returns being generated as compared to Debt Funds. But as discussed above, there is also a risk involved in Equity Mutual Funds as a result of which there may be negative returns as well.
Difference between Debt and Equity Mutual Funds
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