Equity Funds And Debt Funds – Definitions And Differences

If you are an investor, you can have several financial targets, Equity funds and debt funds are the best way to do so. In order to do so you to keep a check on your risk inclinations.


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    equity funds and debt funds

    Overview: Equity Funds And Debt Funds

    To get the best solutions for all the investment issues you can sign up for mutual funds. These will help you in reaching out to your various investment requirements. Mutual funds come in different kinds, and you can choose any one of them based on your risk inclinations. If you are an investor, you can have several financial targets and a set time goal to hit all of them.

    So, to hit your targets in time, you would have to keep a check on your risk inclinations so that you could identify the correct time to invest. This can be done better by knowing the difference between equity funds and debt funds. Once you are clear in the head about the differences between the two, you’ll easily be able to hit your targets in the set time.


    It is no secret that mutual funds are amongst the best solutions for all your money investment doubts. And we can prove this fact by the way people are starting to understand and learn about the differences between equity funds and debt funds. If you are willing to put your money in mutual funds, you should be aware of what is an equity and debt fund, why are these important, differences between them, and how to invest in them.

    So, in this article, we have ensured that you can easily understand everything about equity and debt funds, and also the differences between them. Keep reading along!

    What Are Debt Funds?

    Now, coming on to debt funds. This fund is said to be the most secured type of investment. It offers you guaranteed and stable returns. The risk factor in debt is low and the income is stable too. How? Because your money is put in listed firm debentures, treasury bills, secured financial instruments, and government bonds.

    The basic difference between both types of funds is that the situation of market up-downs is near zero in the case of debt funds. You also get assured income interest with debt funds.

    What Are Equity Funds?

    Before we straight jump on to knowing the differences between equity funds and debt funds, let’s understand and get an idea about equity funds. So, when you decide to put your money in mutual funds, there are few financial instruments in which your fund money gets invested. Supposedly, if these financial instruments are either stake of any listed firm or equity shares, then these funds would be called equity funds.

    Now, there are also several types of equity funds. It is all dependent on the fund manager and what type of stocks does he invest his money in. Some types of equity funds are, Large and Mid-Cap, Small-Cap, Large-Cap, Sectoral funds, and Mid-Cap. When talking about the high-risk factor, equity funds bag the title for bearing high risk than debt funds. But with high risk comes high return.

    Differences Between Equity And Debt funds; At A Glance

    Differences between equity and debt-funds

    As we have discussed equity and debt funds separately, let’s now understand the basic differences between the two, in brief.

    1. Tax saving system: Usually, both type of mutual funds, equity, and debt, isn’t best to save taxes. But you can decide and put your money in an equity fund to save taxes. The minimum amount you’ll need to put in will be Rs. 1,50,000.
    2. Risk: When talking about risk, it is the equity fund that falls on the high-risk end. Why so? Because all the market ups and downs are faced by equity funds. But, on a positive note because the risks are high, so are its returns. The outcome of the equity funds is usually based on their stock market performance.
    3. Timings: In equity funds, one has to face industry fluctuations, but that is not the case with debt funds. That’s why investors give more preference to debt funds.
    4. Expenses: When it comes to expenses, equity funds and debt funds are not very different. The expenses ratio falls between 0.5% to 2.5%.

    Difference Table

    Features Debt Mutual Fund Equity Mutual Fund
    Risk Appetite The risk stays between low to medium The risk with equity funds is high
    Instruments Investment done in commercial papers (CPs), money market, certificates of deposits (CDs), instruments, Treasury bills (T-Bills), corporate bonds, non – convertible debentures (NCDs), and Government securities (G-Secs), etc. Usually invests in derivates, an equity-related instrument.    
    Expenses Low expenses High expenses
    Return on Investment; ROI It stays between low to medium when put in comparison with equity funds. The returns with equity funds are on a higher-end when put in comparison with debt funds.
    Tax Saving option Taxes can’t be saved Taxes can be saved by putting in an amount of INR 150000
    Suitability Debt funds allow you to contribute for a short period or a long period with a small to medium risk. It’s a good alternative to fixed deposits and savings accounts.   Long-term clients with a medium to significant risk tolerance should consider equity funds. These may assist you in achieving your long-term investment objectives.
    Timings Debt funds are more inclined towards the extent of the investment, rather than the timing. In equity funds, timing is necessary as the stock market can change quickly
    Taxation The taxation of debt funds is followed by a set pattern. Funds that are kept for a period of fewer than 36 months get taxed based upon the investor’s income tax rate. Funds kept for more than 36 months, after getting a permit for indexation advantages, get taxed at 20%. The gains from these funds which are kept for <12 months get taxed at the rate of 15%, and gains kept for >12 months are taxed at 10%.

    Why Should One Invest In Equity And Debt Funds?

    Because we are discussing the differences between equity and debt funds, it is also important to understand what makes them so desirable? Let’s find out:

    • There are various other securities, for example, recurring deposits, FDs, etc, and financial instruments, but none of them offers a return like equity or debt funds.
    • You can increase your revenue by just applying for these mutual funds online, or through the help of an external service company.
    • These mutual funds offer a lot of tax-saving schemes. With its help, you can chalk out a plan for your taxes.

    How Should One Invest In Equity Funds And Debt Funds?

    There are several methods via which you can put your money in such mutual funds. But, if you wish only the best out of these funds plus a good source to put your money in, contact us at ODINT Consulting. You’ll be able to invest in several types of stocks, equity, and debt funds, check their performance in real-time. By taking up our services, you can also get advice and suggestions from our skilled experts.



    Now that you’ve reached the end of the article, we assume that by now you must have understood each, and everything related to equity and debt funds. Their meaning, importance, ways to invest, and mainly, the difference between them.

    So, if you are thinking of investing in any of the mutual funds, contact us at ODINT Consulting so that we can provide you with the best guidance. Our experts ensure that all our clients get what they deserve, and we wish to be a part of your successful financial journey. So, contact us today!


    Some of the most investment-worthy equity and debt funds are Franklin India Short Term Income Plan, ICICI Prudential Commodities Fund, Quant Small Cap Fund, UTI Credit Risk Fund, IDFC Infrastructure Fund.

    Mutual funds often deal in a variety of stock market financial products. As a result, equity funds are more likely to benefit from a publicly-traded company’s stock, while debt funds are more likely to benefit from a firm’s shares and debentures.