Mutual fund schemes can be divided into two main categories based on the securities in which they invest – equity and debt funds. Debt mutual funds are less risky when compared to equity fund investments. Furthermore, they can also help you build a steady income for yourself in the long term. Yes, you can use debt funds as a retirement fund too! Read on to know how you can build a corpus of ₹2 crore by investing in debt mutual funds.

What are debt funds and how do they work?

Debt funds invest in fixed-income securities such as treasury bills, corporate bonds, commercial papers, and government securities. These schemes have a fixed maturity date and interest rates that you can earn on maturity. The returns offered by debt mutual funds are less impacted by market volatility as compared to equity funds. Hence, they are considered low-risk investment options.

How can you invest in debt funds to generate a steady income worth ₹2 crore?

You can build a reliable source of income in the long term by consistently investing in debt mutual funds. Here is how you can invest in debt funds to generate a steady income worth ₹2 crore during your retirement –

  • If you are already retired and have received a lump sum amount, you should consider investing in a debt fund.
  • If you wish for your retirement corpus to offer more liquidity, you should consider investing in a debt mutual fund. Open-ended debt funds have no lock-in period. Exiting from a debt fund is extremely convenient. You can gain three key benefits from debt funds – capital preservation, low volatility, and liquidity.
  • If you wish to invest aggressively in debt mutual funds to build a ₹2 crore retirement corpus in ten years, you can select a hybrid debt fund investment. Hybrid debt funds invest a majority of their corpus in money-market instruments and the remaining in equities, thereby helping you earn high returns.

Points you must consider before investing in a debt mutual fund scheme:

You should consider the following points before investing in a debt fund –

  • You should consider your investment horizon: Building a corpus is a long-term investment goal that would require you to continuously reassess your investment.
  • Consider your risk appetite before investing: You must select a fund that aligns with your willingness and ability to take risks.
  • Check the fund’s expense ratio: While debt funds generally have a lower expense ratio, this cost could be higher for certain debt fund variants. You must check this fee before investing in the fund.

In conclusion

You can invest in debt mutual funds to generate a corpus worth ₹2 crore to generate steady income over the long term. To do this, you must research and compare debt funds online, assess their performance in the past, and check the fees charged and invest accordingly. You should keep reassessing your debt fund investments to check if they align with your investment objective of generating an income stream during the long term, such as retirement.