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Difference between Debt and Equity Mutual Funds

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

Due diligence report format as required by RBI

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