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Debt funds a safer bet in volatile market

A debt fund’s main goal is to give investors steady income throughout the investment horizon

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It’s hard to see your investments go up in value one day and down the next. And it’s even harder to see them go down day after day. When financial markets fluctuate, even the calmest investors get spooked and begin to question their investment strategies. In the time of volatility, anxious market investors can be lured to take money off the table, fearing a potential major loss. 

However, the important thing to realise is that stock market is volatile. It’s the nature of the markets to move up and down over the short-term. One solution is to maintain a long-term horizon and ignore the short-term fluctuations. Also, investing for the long-term (more than five years) is the only route to get some decent returns.

Lately, many experts have realised that unit linked insurance plans (ULIPs) have emerged as a popular investment tool that offers a wide range of funds for people who are looking for managed returns. So if you are a moderate investor, ready to take some risk yet want some stability then putting money in both equity and debt instruments or balanced investment products, is the right option. While equity is the solution for your high returns, when it comes to beating inflation, debt funds are your best bet.

Three reasons to invest in debt funds through ULIPs

Minimal charges

The major advantage of investing in debt funds is its low cost structure which is 0.9%. With their minimal investing charges and high return giving characteristics and easy switch options, ULIPs are the solution to every investor’s worry about the volatility of the market.

Low risk

Volatility will always be a part of the market, but there are always options to smooth out the bump. Debt funds are ideal for investors who are looking for stable returns, but are risk-averse. As these funds will not only provide stability but also a regular income in these volatile conditions. If you have been saving in traditional fixed income products and looking for steady returns with low volatility, debt funds could be an option, as they help achieve financial goals in a more tax efficient manner and therefore earn better returns.

However, the important thing is to pay attention towards your asset allocation. While investing in a ULIP, you are handed the flexibility of opting for several fund options where you can invest as per your risk profile. It comes with a switching feature giving you an option to transfer money from one fund to another.

Switching is helpful especially during volatile markets thereby ensuring the optimum performance of your invested amount making them less risky in comparison. As an investor you can choose between equity, debt and balanced fund options. Additionally, ULIP fund managers generally adopt a conservative and less-riskier approach as compared to mutual funds where managers tend to follow aggressive investment strategies in order to generate superior returns.

Returns

A debt fund’s main goal is to give investors steady income throughout the investment horizon. This is in fact the primary purpose of investing in debt funds for most people. Even if the inflation rises at 4-5%, you can expect a return of 7-9% if invested in ULIPs assuring you stability and guaranteed returns.

The writer is business head - health insurance, Policybazaar.com

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