There are quite a few reasons why
individual investors may prefer
to invest in mutual funds, instead of directly investing in
individual stocks. Mutual funds offer diversification (stock portfolio diversification
ensures that the risk associated with investing is also diversified to a large
extent), convenience (researching, decision making, and record keeping,
among other services, are taken care of by the fund managers), and lower costs
(the trading costs are shared by all the investors in the fund, thereby lowering
the costs incurred by an individual), besides professional management of
one's investment. The mutual fund category includes a wide variety of types that
cater to the needs of different investors. One of them is debt funds.
Debt funds invest in debt instruments issued by government bodies,
private companies, banks, and financial institutions, including short-term and
long-term bonds, securitized products, money market instruments, and
floating rate debt. Debt funds are preferred by investors who look for less risk,
as the lower volatility of debt funds makes them less risky, compared to
other types of funds.
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