As soon as the name of mutual fund comes in the stock market, fear of equity, stock market fluctuations and capital loss arises in the minds of most of the investors. However, there is also a segment of mutual funds which has no connection with the equity market (shares). These are called ‘Pure Debt Funds’. SBI Mutual Fund, the country’s largest fund house, has a number of schemes that invest in government securities, treasury bills and triple-A (AAA) rated bonds with zero percent equity risk. It offers an alternative to conservative investors with better liquidity and returns than bank savings accounts and traditional fixed deposits (FDs).
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Portfolio Strategy: The fund invests only in highly secured securities such as CBLO/TREPS and reverse repo with maturity of 1 day only.
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Equity Exposure: 0%.
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Main Benefits: In this, interest rate fluctuations and default risk are negligible.
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Suitable for: If you want to safely park your extra cash for a few days to a few weeks, this is a great savings account option.
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Portfolio Strategy: The scheme invests money in short-term money market instruments, Commercial Papers (CPs), Certificates of Deposit (CDs) and Treasury Bills with maturity up to 91 days.
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Equity Exposure: 0%.
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Main Benefits: Better return potential than a bank savings account and complete freedom to withdraw without any exit load after 7 days.
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Suitable for: Ideal option for investors looking to secure emergency funds for a period of 1 to 6 months.
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Portfolio Strategy: As per SEBI norms, more than 80% of this fund is invested in highly-rated (AAA/SOV) bonds of public sector banks, Navratna/Maharatna public undertakings (PSUs) and financial institutions.
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Equity Exposure: 0%.
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Main Benefits: The risk of credit default is extremely low and with a 1 to 3 year horizon, it offers stable returns that rival traditional bank FDs.
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Suitable for: Conservative investors seeking stable capital growth for 1 to 3 years.
| Speciality | Bank Fixed Deposit (FD) | SBI Pure Debt Mutual Funds |
| equity risk | Zero (0%) | Zero (0%) |
| liquidity | 0.5% – 1% penalty for premature departure | Withdrawal as per requirement (Flexible) |
| credit risk | DICGC insurance cover up to Rs 5 lakh | Sovereign and AAA Rated PSU Bonds |
| compounding | On monthly/quarterly basis | Daily NAV Growth |
| taxation | As per slab (TDS deducted) | As per slab (tax on withdrawal only) |
Debt mutual funds are completely free from equity risk, but they are subject to slight fluctuations in NAV depending on the interest rate cycle. Additionally, under the new rules of the Finance Act, profits from 100% debt oriented funds are added to the investor’s total income and taxed as per his applicable income tax slab. Choose the right fund as per your capital protection and time horizon of financial goals.