Mutual funds have a range of classifications. One of the most discussed funds are equity and debt funds. Equity funds are often associated with securities, bonds or shares, whereas debt funds comprises of corporate deposits, government bonds , treasury bills, etc.
Equity funds may have potential risks while higher in returns compared to debt funds where the risks are moderate but returns are comparatively less.
Therefore, here are the differences between equity and debt to make the choice of investment funds in this article:-
Let’s Understand Difference between Equity and Debt Funds
| Attributes | Equity Funds | Debt Funds |
| Definition | Equity Funds usually refers to those kinds of funds where an individual invests in derivatives like futures, options, etc. Typically, the stocks relate to capital appreciation that makes longer tenure for investments in equity funds. There are different models of equity like large cap, mid cap or small cap depending on your risk appetite. | Debt funds refers to those types of funds where an individual invests in government or corporate bonds like CPs (Commercial Papers), T-Bills (Treasury Bills), or NCDs (Non-Convertible Debentures), etc. Due to lower investment period, it associates with lower risks, which makes it mostly sought investment options of investors. |
| Returns | The returns in equity funds are regularly higher compared to debt funds. | The average return in debt funds are between 8-10%. |
| Taxability | Equity funds usually are taxed as per the time limit of investments. For longer tenure more than 13 months (of capital gains of), you can be charged 10%. For the first 12 months, you’re charged 15%. For longer periods, you can get more than 1 lakh or more tax exemption. Know more! | Being overnight funds, there are not such tax exemptions at all in debt funds. |
| Risks | The risks are moderate to high. | The risks are lower or less. |
| Period | Equity funds can be upto 10 years or longer as per your risks. | Debt funds can revolve around 1-2 days or a few years as per your investments. |
Conclusion
Equity and Debt funds are both highly significant and valuable funds in the share market. Although equity funds may come with a lot of volatility, it can give you whooping returns after a point of time. Debt funds, on the other hand, come with less risk, but give returns in a lower percentage than that of equity funds. So, take your steps as per your risk appetite and by consulting market analysts.
