Debt Mutual Funds vs Equity Mutual Funds

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.

2. Taxability

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%

3. Risk

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.

4. Returns

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