Passive debt funds have emerged as a popular investment option for individuals looking for low-risk investment opportunities in the debt market. These funds are gaining momentum in the financial market due to their simplicity, lower management fees, and better returns compared to actively managed funds.
In a recent interview with CNBC-TV18, Radhika Gupta, MD and CEO of Edelweiss Asset Management shed light on different types of passive debt funds.
“Whether it is equity or debt, you have a very wide range of passive funds. I truly believe passive funds, especially fixed income funds can now become the core of your fixed income investing,” she said.
Edelweiss has launched India's first Passive Short-Term Index Fund. This is an investment option suitable for any kind of debt investor wanting to invest for a minimum of two-three years, with a low cost.
Two popular types of passive debt funds are Target Maturity Funds and Debt Index Funds. Target Maturity Funds invest in fixed income securities that mature in line with the fund's maturity date, providing investors with a predictable income stream. Debt Index Funds, on the other hand, aim to replicate the underlying index in terms of portfolio and risk, providing investors with better visibility of returns.
When it comes to investing in passive debt funds, it's important to consider a few key factors to ensure that your investment aligns with your financial goals. Firstly, investors should align their investment horizon with their financial goals. Passive debt funds are ideal for short-term investment goals or for those investors who want to diversify their portfolio.
One of the most significant advantages of passive debt funds is their predictability of returns. These funds offer investors a stable and predictable income stream, making them a popular choice among risk-averse investors. Furthermore, passive debt funds provide transparency in terms of their portfolio and investment strategy, ensuring that investors have a clear understanding of their investment.
Another key advantage of passive debt funds is that they come with no lock-in period. This means that investors have the flexibility to redeem their investments anytime, providing liquidity when needed. Additionally, passive debt funds are taxed at a lower rate compared to other debt instruments, providing investors with higher post-tax returns.
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Passive debt funds are also considered to have a low credit risk as they invest in high-rated debt instruments, providing investors with a low-risk investment option. However, it's essential to note that these funds do not guarantee returns, and investors should carefully analyze their investment goals and risk appetite before investing.
For more details, watch the accompanying video
(Edited by : Pradeep John)
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