Debt Mutual Funds

A debt fund, also called an income fund, mainly invests in bonds or other types of debt securities. These funds can include different kinds of securities issued by the government, public financial institutions, or companies, like Treasury bills, Government Securities, Debentures, Commercial paper, Certificates of Deposit, and more.

Debt funds can be sorted based on the duration of the securities they hold and/or the issuers of those securities, or their fund management strategies. For example:

  • Short-term funds, Medium-term funds, Long-term funds
  • Gilt funds, Treasury funds, Corporate bond funds, Infrastructure debt funds
  • Floating rate funds, Dynamic Bond funds, Fixed Maturity Plans

Debt funds have the potential to generate income and preserve capital

Debt Fund Categories as per SEBI guidelines on Categorization and Rationalization of schemes

Category Rational
Overnight Fund Overnight securities having maturity of 1 day
Liquid Fund Debt and money market securities with maturity of upto 91 days only
Ultra Short Duration Fund Debt & Money Market instruments with Macaulay duration of the portfolio between 3 months - 6 months
Low Duration Fund Investment in Debt & Money Market instruments with Macaulay duration portfolio between 6 months- 12 months
Money Market Fund Investment in Money Market instruments having maturity upto 1 Year
Short Duration Fund Investment in Debt & Money Market instruments with Macaulay duration of the portfolio between 1 year - 3 years
Medium Duration Fund Investment in Debt & Money Market instruments with Macaulay duration of portfolio between 3 years - 4 years
Medium to Long Duration Fund Investment in Debt & Money Market instruments with Macaulay duration of the portfolio between 4 - 7 years
Long Duration Fund Investment in Debt & Money Market Instruments with Macaulay duration of the portfolio greater than 7 years
Dynamic Bond Investment across duration
Corporate Bond Fund Minimum 80% investment in corporate bonds only in AA+ and above rated corporate bonds
Credit Risk Fund Minimum 65% investment in corporate bonds, only in AA and below rated corporate bonds
Banking and PSU Fund Minimum 80% in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds
Gilt Fund Minimum 80% in G-secs, across maturity
Gilt Fund with 10 year constant Duration Minimum 80% in G-secs, such that the Macaulay duration of the portfolio is equal to 10 years
Floater Fund Minimum 65% in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives)