ULIPs and mutual funds are two popular yet distinct investment avenues, each coming with its unique set of benefits and drawbacks. Know which one is better for your individual needs and preferences.
If you are a cautious investor, you might have had doubts about investing in mutual funds or stock markets. However, you would be delighted to know that you may choose to invest in a certain class of mutual funds without taking on a lot of risks. How? Well, the answer is debt funds. Although you may be familiar with them, it's probable that you still have a persistent concern about how secure these debt mutual funds are in the UAE.
Well, debt funds are certainly more secure than equity funds in the UAE. Even among the numerous debt funds, there are varieties of funds available in the country. These are generally categorised based on their tenure, risk-return ratio, liquidity, and investment instruments. All you need to do is to invest in such funds as per your financial objectives and preferred investment horizon.
Before we understand the major benefits of investing in these funds and the best debt funds that are available in the UAE, let us understand the fundamentals of debt funds.
Debt funds are types of mutual funds that primarily invest in fixed income instruments such as corporate bonds and treasury bills. These funds have predetermined interest rates that investors can earn upon maturity of such bonds. This is why they are also referred to as fixed-income securities. Debt funds are usually considered as a low-risk investing alternative because they do not fluctuate much and are not much subject to market volatility. The goal of such funds is generally to build wealth over time as well as provide consistent returns to the investors.
Following type of investors can choose to invest in debt funds in the UAE:
Let us now look at some of the reasons for investing in debt funds by considering some of their top advantages as mentioned below:
Let us now look at some of the top debt funds in the UAE:
Globally, many countries issue debt instruments to help their respective governments cater fiscal or budgetary policies. Such instruments are said to be global debt/bond funds. These funds may be categorised as developed and developing market indices depending on the issuing country of the funds. Now, as a UAE investor, you can choose to invest in these global debt funds, while considering their risks and rewards. However, remember that these instruments are volatile and their risk-return ratio usually varies depending on the political and economic situation of the issuing country. Also, such bonds are rated using globally standardised credit rating analysis, so you must carefully monitor the same before making a viable investment decision.
If you are looking for steady investment opportunities, debt funds ought to make up a significant portion of your asset allocation. But before choosing which fund to invest in, remember that it is crucial to decide which category best matches your investing horizon and risk tolerance. It is always a good idea to keep in mind that the primary goal of debt funds should be to stabilise your portfolio rather than to generate bigger returns.
Ans: Liquid funds and overnight funds are the two most liquid-debt funds in the UAE. With minimal interest or credit risk, these are the most secure investments in the debt category. These have an easy redemption facility and at the same time ensure that you achieve stable returns in the invested period.
Ans: Gilt funds may be your best option if you wish to invest in debt funds with minimal credit risk. These debt funds mostly invest in government securities such as government bonds in the UAE. Thus, they provide security along with lucrative returns on your investment.
Ans: Generally, debt funds are safe investment instruments but due to changes in interest rates, these funds may yield negative returns. It must be noted that longer-term debt funds are more susceptible to interest rate risk. Therefore, you must carefully analyse the interest rates in UAE and their tendency to fluctuate before investing in these funds.