speaking from india pov
debt MF are funds that invest in Debt related instruments like private Debt ( rated and unrated), government securities and other publicly and privately available bonds
equity MF are funds that invest in company shares
they are hybrid too that invest partly in debt and party in equity. the returns are taxed based on the ratio of equity in a fund. in any case profit generated post one year are tax free.
To understand it in simple manner, assume you invest 1,000 Rs in a mutual fund. Also assume that there are 100 such investors, who have invested in the same mutual fund scheme. So, in total, the mutual fund will have corpus of 100,000 Rs. If it is a debt mutual fund, it will invest most of its fund in debt instruments (like government securities or debentures of companies, or even fixed deposits somewhere). But if it is an equity mutual fund, it will invest most of its funds into equities (or in other words, stock market). In both the cases, “most of its funds” means more than 50% of the total fund.
From the point of view of risks and returns, debt funds are safer but they provide less return on investment. On the other hand, equity funds are riskier, but in the long term, they give more return than debt funds.
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December 31st, 2009 at 11:41 am
Well my first thought is that Debt Mutual Funds are created with Debt, (Dur!!), so if you are using debt to finance a Fund then you would be charged Interest which would have to be covered by the returns before profiting from the investment. And if you lose out funds, the charges would still be owing, i dont see this as a good investment strategy. Equity is Funds/Assets that you own. so no Interest Charges