Is there a Special Benefit in Being Invested For a Long Time in a Debt Fund?

A very important and useful question, indeed.

In the case of investment in a debt fund is concerned there is no special advantage in being invested for a very long time because in debt fund the interest is paid out and there is no reinvestment and no scope for capital appreciation. One will get the interest as long as one holds the investment. The quantum of returns depend on the prevailing interest rates in the market.

On the contrary, in the case of an ‘Equity Fund’, the prices of the shares that are constituents of the fund will increase many folds in the long run on the back of two important factors as follows:

1. Natural growth of revenues and profits of the companies in an environment of general prosperity.
2. Operation of the law of ‘Miracle of Compounding’ propounded by Albert Einstein, in favour of the investor and consequent wealth creation in the long term.

To conclude, there is no special benefit in remaining invested in a debt fund for a long time. However, long time is the most essential ingredient of wealth creation in the case of an equity fund.

Note: This is a reproduction of the question I had answered on the website ‘Quora’, which I thought could be useful to the visitors to this blog site also.