A Mutual Fund is a professionally organised fund which collects money from the public and then invests this money in those instruments for which it has raised funds. There are many types of Mutual Funds, but the 2 most popular funds are Debt Mutual Funds and Equity Mutual Funds. Debt Mutual Funds are also known as Debt Funds
- Recommended Read: What is a Debt Fund?
Difference between Debt & Equity Mutual Funds
1. Nature of Investments
Debt Mutual funds are funds which raise money from the public and then invest a major portion of this amount in various fixed income earning investments like Govt Bonds, RBI Bonds and other highly rated securities.
Equity Mutual Funds are funds which raise money from the public and then invest a major portion of this amount in stock markets.
|Type of Fund||Period of Holding||Tax Rate|
|Equity Mutual Fund||Less than 1 year i.e. Short Term||15%|
|More than 1 year i.e. Long Term||Tax Free|
|Debt Mutual fund||Less than 3 years i.e. Short Term||As per Slab Rates|
|More than 3 years i.e. Long Term||20%|
Equity Mutual Funds usually invest in Stocks and Shares and therefore they have an inherent risk attribute which is much higher than the Risk attribute of Debt Funds which usually invest in Fixed Income earning Investments.
As Equity Mutual Funds invest in stocks and shares, there is a good probability of higher returns being generated as compared to Debt Funds. But as discussed above, there is also a risk involved in Equity Mutual Funds as a result of which there may be negative returns as well.
The above mentioned differences between Debt Funds and Equity Mutual Funds have been summarised below:-
|Particulars||Debt Mutual Fund||Equity Mutual Fund|
|Nature||Invest in Bonds, Corporate Deposits etc||Invest in Stocks and Shares|
|Taxability||STCG ie less than 3 years: Slab Rates LTCG ie more than 3 years: 20%||STCG ie less than 3 years: 15% LTCG ie more than 3 years: Exempt|
|Risk||Low Risk||High Risk|
|Return||Low Returns||High Returns|