Debt mutual funds

When you buy debt instruments you basically give a loan to the issuing entity who in turn pays you a fixed interest. Debt funds invest money in debt and money market instruments –such as Certificate of deposits, corporate bonds, government securities, commercial papers, Treasury Bills etc.

Debt funds are suited for investors who are very conservative in terms of taking risk. You should also invest in debt instruments to diversify your investments made in equity markets. Debt funds also give higher returns than fixed deposit
What are the various types of debt mutual funds?
Debt Mutual Fund have total 18 different types of schemes;

Overnight funds

These funds invest in overnight securities having maturity of 1 day. Overnight Funds are a type of debt fund with extremely risk. Overnight funds are a good alternative to saving bank account. Overnight fund does not charge any exit load or other additional charges.

Liquid funds

Liquid funds invest in short-term money market products such as treasury bills, commercial papers, term deposits, etc. They invest in securities that have lower maturity period, usually less than 91 days. They are good alternatives to saving bank account and offer higher after-tax returns.

Ultra-short duration funds

These funds invest in fixed income instruments which have a maturity period of 3- 6 months. You can invest your ideal cash in ultra-short duration funds.

Low duration funds

Low duration funds are similar to ultra-short duration funds but have a maturity of 6 months to 1 year. They provide better returns than saving account and slightly better return than liquid funds

Money market funds

Money market funds are mutual funds which invest in money market instruments like T-bills, Commercial papers, Certificate of deposit. Maturity of this fund is up to 1 year. Investors with surplus cash can invest in these funds.

Short duration funds

Short duration funds invest in both debt and money market instruments with maturity of 1-3 years

Medium duration funds

Medium term funds invest in debt and money market instruments with a time horizon of up to 3 years or more.

Medium to long duration funds

Investment in debt and money market instrument s with maturity of 4-7 years.

Long duration funds

These funds invest in debt and money market instruments that have a maturity period greater than 7 years.

Dynamic bond funds

Dynamic bond funds invest in both short and long duration funds and the fund managers keep changing the portfolio composition according to the market conditions. This fund is actively managed by the fund manager who keeps a close look at domestic as well as global market conditions.

Corporate bond funds

Corporate Bond funds invest in companies with high ratings capable of providing decent return with low risk. Minimum investment done is 80% of the total assets.

Credit risk funds

Credit risk fund invest in securities with lower rating than corporate bond fund. Investors can fetch decent returns but a minimal risk. Minimum 65% of the assets are invested in below high rated corporate bonds.

Fixed maturity plan

Fixed Maturity Plans (FMPs) are closed ended Debt Mutual Funds that invest in debt instruments with a specific date of maturity that is less than or equal to the maturity date of the scheme.

Gilt funds

These types of funds are only invested in Government securities. They are safer as they are invested in Government securities. Minimum amount invested is 80% of the total assets.
Banking and PSU fund
This fund invests a minimum of 80% of its total asset in debt instruments of banks, public sector undertaking (PSU) and public financial institution. Minimum 80% of total assets are invested in these funds.

Floater fund

These funds primarily invest in floating rate debt securities, where the interest paid changes in line with the changing interest rate scenario in the debt markets. Minimum investment made is 65% of the total assets