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.