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) |
