Ever wondered how Debt Funds function? What exactly are Short Duration Funds or Dynamic Funds?

In this blog, we’ll delve into Debt Mutual Funds, their different types and how they serve as an alternative to traditional fixed deposits.

What are Debt Mutual Funds?

Debt Mutual Funds are a type of mutual fund scheme that invests primarily in fixed-income instruments like corporate and government bonds, T-bills, and other debt securities. Think of them as an alternative to fixed deposits.

Now, let’s take a closer look at the various types of Debt Mutual Funds and what sets them apart:

Liquid Funds: These funds invest in short-term money market securities with a maturity of 91 days. They’re like an alternative to traditional bank savings accounts.

Overnight Funds: Invest in money market securities with a maturity of 1 day. These funds offer an alternative avenue to park surplus money for short-term goals.

Ultra-Short Term Funds: Invest in debt securities maturing within 3 to 6 months. These funds offer slightly higher returns than liquid funds while maintaining low risk.

Short-Duration Funds: These funds invest in debt instruments maturing within 1 to 3 years. They offer slightly higher returns than liquid and ultra-short-duration funds with moderate risk.

Medium-Duration Funds: Focusing on debt securities maturing within 3 to 5 years. These funds offer investment options beyond fixed deposits.

Long-Duration Funds: They allocate capital into debt securities that mature beyond 7 years. These funds provide long-term investment avenues in debt instruments.

Corporate Bonds: They invest in corporate debt securities in India. These funds can have a dynamic duration, offering higher returns with moderate credit risk.

Banking and PSU: They invest in debt instruments issued by banks and public sector undertakings (PSUs). These funds offer moderate returns with relatively low risk.

Gilt Funds: These funds invest in government securities (gilts) issued by the central or state governments, making them relatively low-risk investments.

Dynamic Funds: They invest in debt instruments with various maturity periods. These funds aim to optimize returns by actively managing the portfolio based on the fund manager’s view of the interest rate cycle.

Conclusion

Each type of Debt Mutual Fund has its unique characteristics, catering to diverse investment objectives. It’s crucial to understand your investment goals thoroughly and carefully evaluate the associated credit and interest rate risks before making any decisions.

Disclaimer – This is for informational purposes only and not an investment advice.