Systematic Investment Plans (SIPs) are becoming a popular investment option for mutual fund investors. While most of us prefer to invest in equity funds, we frequently overlook the advantages of debt mutual funds. Despite not being as volatile as their equity equivalents, debt mutual funds go through volatile periods such as dropping and rising interest rates.

Since the NAV varies across the phases, SIP participants can reduce their average cost of debt fund investing. Those looking to add fixed-income assets to their portfolio or build an emergency fund can consider initiating a SIP in one of the MC30 debt funds.

Debt funds are mutual funds that invest primarily in stocks and bonds and have little or no exposure to the stock market. In the short term, most Indians prefer to save through bank savings. Debt funds can be deposited against bank repeating deposits (RDs) in periods of the maturity time offered. Investing in debt funds via SIP, on the other hand, provides a superior risk-adjusted return than RDs.

SIP debt fund

What are Debt Funds?

TDT mutual funds are classified by SEBI (Securities and Exchange Board of India) based on investment aim, asset allocation, risk profile, investment strategy, etc. Debt funds are among the most popular mutual fund categories for satisfying short-term financial objectives. Debt mutual funds primarily invest in fixed income instruments such as call money, government securities, certificates of deposit, corporate bonds, and treasury bills, among other things.

How does a SIP in debt funds help?

You’re more than likely to invest in a mutual debt fund to meet a financial goal that you need to meet in the next year or two or to balance your portfolio’s long-term debt allocation.

If your requirement is mainly focused on the first part, you must first determine how much and when you require it. If you’re starting a SIP, use your projected return on investment.

The SIP allows you to save smaller amounts of money each month for a goal that would be at least a year or two away. While SIPs inequities have considerable time to grow, SIPs in debt funds are primarily about behavior management.

The SIP is automatically deducted each month, and you are not allowed to spend the money. SIP allows you to lock in your savings without having to bargain.

SIP in a debt or a liquid fund is appropriate for your long-term debt allocation, for example, building an emergency fund or balancing risk in your portfolio. Debt fund SIPs are deducted in addition to your monthly equity fund SIPs, ensuring that your portfolio is offset from the outset.

Why should you invest in debt funds through SIP?

Power of Compounding

Compounding in mutual funds refers to interest received on interest or profits earned from your investments in simple terms. Compounding could convert tiny SIP amounts into giant corpuses due to this capability.

Tax Efficiency

Debt mutual funds may be appropriate if tax avoidance is a leading investment goal. Many people invest solely to reduce their annual tax liability. This is because debt funds are less taxable than traditional investment options such as fixed deposits (FDs).

Whether the maturity date is in that year or later, the interest you receive on your FDs is taxed each year based on the income slab you qualify for. You only pay tax on debt money when you redeem them, not before.

High Liquidity

A lock-in period applies to fixed deposits. If you liquidate your FD early, the lender may charge you a penalty. While debt mutual funds do not have lock-in periods, some charge an exit load, a cost applied at the time of sale for early withdrawals. The exit load’s duration varies by the fund, and some funds have no exit load. On the other hand, debt mutual funds are liquid, and you can withdraw your cash at any moment during the business day.


Investing in debt funds might help you diversify your portfolio. While equity funds have a higher return potential, they can be volatile. This is because the performance of equity funds is directly connected to the stock market’s performance. You may diversify your portfolio while lowering overall risk by investing in debt funds.

Final Thoughts

Debt mutual funds are an excellent alternative to consider if you want a more consistent income than stocks while limiting your exposure to market risk. You can invest in various debt funds, including liquid funds, fixed maturity plans, ultra-short-term debt funds, and more, depending on your investment objectives and time horizon.

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As a business writer, I bring a new perspective to the market by looking at the business world from a different angle. For example, I look at businesses through the lens of “Can they earn money?” and “Can they make money?” My work at Brandwizo covers various topics, including Marketing, Product Development, Business Strategy, Branding, Marketing, and Entrepreneurship.As a blogger, I write about everything investing, including stocks, mutual funds, real estate, and trading. I like to inform my readers about what’s happening in the investment world and how to become successful at making money through smart investments.