Understanding the Benefits of Debt SIPs

Mutual fund schemes are not a monolith. Instead, different types of mutual fund schemes are accessible to you as investment options. These different variants invest in different financial securities and have varying investment objectives. One of these variants of mutual fund investment options is debt funds.

What are debt funds?

Debt funds are mutual fundsthat allocate funds to fixed-income securities. Bonds, T-bills, debt, CDs, and money market instruments are some examples of fixed-income securities. This type of mutual fund is not volatile and hence generates stable returns. Adding debt funds to your portfolio will help you reduce the investment risks of an equity portfolio.

There are two modes of investmentsfor fund allocation in debt funds. The two options are the lump sum and systematic investment plan or SIP investment mode. Under the lump sum mode, you pay the mutual fund investment amount in full. SIPs, on the other hand, work differently than the lump sum mode.

What are SIPs?

A systematic Investment Plan or SIP enables you to invest a certain sum regularly in your mutual fund scheme. Invest in SIP if you are new to the job market. Leave a standing instruction with your bank for deduction from your bank account on a specific day of the month.

Unlike lump sum investments, your funds are invested over time in the SIP mode. Hence, you don’t need to have the required investment amount at your disposal to start your investment journey. For SIP investment, you are required to set aside a sum regularly, which might instil financial discipline over time.

Why invest in debt funds through SIP?

Investing in debt funds through SIP will be beneficial for you. Below are some of the benefits associated with debt mutual fund investments through the systematic investment plan or SIP mode:

  1. Low risk

If you are a conservative investor who wants capital appreciation, but with low investment risk, consider investing in debt funds. As the investment target is fixed-income securities with fixed interest rates and maturity periods, debt funds are not as volatile as equity funds.Therefore, add debt funds to your mutual fund portfolio with some equity funds to balance the risk-return profile. Debt funds can serve as a cushion against equity market volatility.

  1. Stable returns

Debt funds offer investors stable returns because these schemes are less dependent onmarket conditions. They invest approximately 65% of the funds in debt securities like debentures, certificates of deposits, and bond papers. The value of these instrumentsdoes not fluctuate as easily as stocks.

  1. Flexible

You are free to invest in debt funds in lump sums whenever you experience a windfall. At the same time, you can invest a small sum through SIPs when you have just started earning.You can also transfer units from one mutual fund variant to another through with the help of STPs (systematic transfer plans).

  1. Convenient

Like other mutual fund variants, there are two different options, namely lump sum, and systematic investment plans. These investments are convenient especially through the SIP mode as you can regularly invest every month.


Debt fund investments through the SIP mode are appropriate if you are a young professional from the middle class. However, be aware of the required investment amount if you are investing through the SIP mode. A free SIP calculator can help you determine the investment amount required.

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