Let’s meet two friends, Ravi and Anita. They are both 30, thinking more seriously about investing. One evening while having coffee, they got into a conversation about what they would do with some savings they had each set aside.
“I’m thinking of putting my money into debentures,” Ravi said.
“Debentures?” Anita replied, raising an eyebrow. “I’m was actually thinking of using mutual funds. What is the difference between them?”
And so began their exploration into a common question: Debentures vs. Mutual Funds: Which one is better?
Ravi’s Choice: Debentures
Ravi described, “When you purchase debentures, you basically give a loan to a company or corporation. Then the company gives you an assurance that it will pay back your loan along with interest over a specified timeframe.”
Anita nodded. “So, basically, it is like earning regular income, similar to fixed deposits?”
“Yep,” Ravi said with a smile. I believe they are ultimately less risky if you invest in a solid and honest company. Though I can’t see myself getting rich too quick, as I intend to generate stable f ixed returns. This works for me because I do not like surprises.”
Anita’s Choice: Mutual Funds
Then Anita explained her side. “I want to make my money work harder for me. I like mutual funds, because they are supposed to accumulate quicker. Mutual Funds invest in different items, usually stocks and bonds, and are actively managed by professionals.”
“Isn’t that risky?” Ravi asked.
“Certainly a little,” Anita said. “But there is a corresponding good chance that I am rewarded with better returns. I also love that mutual funds will use a portion of my money in areas that will lessen risk, since my money is diversified. I also like that I can invest in any amount and can take it in and out anytime.”
A Great Opportunity
Ravi also shared an opportunity he recently learned about from GHL - an alternative investment.
"It requires a minimum amount of ₹1 lakh with a tenure of 24 months. You are offered 2% interest paid to you monthly! So you've earned 24% at the end of the year and 48% at the end of the 2 years," said Ravi.
"And it's a secured debenture because it is secured by the assets of the company. So that gives me more comfort," said Ravi.
Anita listened anxiously and engaged because she liked the idea of the combination of security with high returns.
Now Who is Right?
Debentures vs. Mutual Funds: Which one is better? The truth is, there’s no one right answer.
The reality is both Ravi and Anita are right - just in different ways.
The debentures provide Ravi with solitude by offering fixed income and less risk than other investments.
The mutual funds provide Anita with the potential to grow her wealth regardless of whether the market goes up or down.
So, What’s Right For You?
Ask yourself: Do you want to achieve predictable income without too much risk? Then you might consider debentures.
Do you want to build wealth, while accepting some level of market volatility? Then mutual funds might be the vehicle to use.
Ultimately, the answer to Debentures vs. Mutual Funds: Which one is better? is one that takes into account your goals, risk appetite, and time period.
Many savvy investors actually do what Ravi and Anita eventually decided on:
"Why don't we do both?" said Ravi.
"Right," said Anita. "Balance is everything!”
So Debentures vs. Mutual Funds: Which one is better for you? Are you more like Ravi or Anita?
