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Equity Funds Vs Debt Funds: What Are The Differences?

Equity funds versus debt funds, which one is better? This blog covers how these mutual funds work, their benefits and the 5 key differences between equity funds and debt funds.
November 7, 2024
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Apart from the fact that they’re market-linked mutual funds, equity funds and debt funds don’t have much in common. That said we must explore the differences between equity funds and debt funds. 

More importantly, we will help you understand who should invest in equity funds and debt funds.

What Are Equity Funds?

Equity funds invest in shares of stock in companies from different market caps, sectors, themes, and countries. 60-65% of an equity fund’s portfolio consists of stocks. 

The rest of the portfolio could be made up of debt and money market instruments to balance out the risks. A fund manager decides which stocks to buy and sell to generate profits. 

If the fund is actively managed, the fund manager will constantly monitor the market to buy and sell stocks. These funds will have a higher expense ratio but a better chance of delivering lucrative returns.

On the other hand, if the fund is passively managed, the fund manager will put together a portfolio of stocks that mirrors an index like NIFTY 50. 

The expense ratio would be lower but chances of delivering lucrative returns will depend on the performance of the index. Broadly speaking, the returns than you can expect from equity funds lie between 9-16%. 

But equity funds do carry volatility and a com

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