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Merits
Fixed Returns – Predictable interest income at fixed intervals.
Lower Expense Ratio – No fund management fees like mutual funds.
Control Over Investment – Investors choose specific bonds based on risk appetite.
Lower Credit Risk (for Govt. Bonds) – Government bonds are relatively safe.
No Market Volatility Impact – Direct bonds are less affected by stock market fluctuations.
Demerits
High Initial Investment – Bonds often require a larger minimum investment.
Liquidity Issues – Selling bonds before maturity may be difficult and may lead to losses.
Interest Rate Risk – Bond prices drop when interest rates rise.
Credit Risk (for Corporate Bonds) – Possibility of default if issuing company faces financial trouble.
Debt Mutual Fund Investment
Merits
Diversification – Spreads risk across multiple debt securities.
Liquidity – Easy to redeem and exit anytime.
Professional Management – Managed by experienced fund managers.
Tax Benefits – Indexation benefits on long-term capital gains after 3 years.
Lower Entry Barrier – Can invest with small amounts via SIP or lump sum.
Demerits
Expense Ratio – Fund management fees reduce overall returns.
Market Risks – Returns fluctuate based on interest rates and credit risks.
No Fixed Returns – Unlike bonds, debt mutual funds don’t guarantee fixed interest.
Credit Risk – Fund performance depends on underlying bonds, which may default.
