Top 8 Debt Mutual Fund Instruments in India Debt funds invest in all kinds of debt, like treasury bills, corporate bonds, government bonds, commercial papers, certificate of deposits, etc. There are different debt funds that invest in debt securities with specific Durations, for specific goals or for a specific risk profile. Let’s take a look at the different options available to investors.
Overnight Fund Overnight funds are relatively stable investments since they have such a short maturity period and hence minimal credit and interest rate risk. These funds are also the safest and most liquid, with no exit load. When choosing an overnight fund, be sure to compare it against returns from a savings account to get the best idea of its performance.
Liquid Fund Liquid funds are a type of mutual fund that invest in debt and money market securities, such as Treasury bills, certificates of deposit, and commercial paper with maturities of up to 91 days. Some liquid funds also offer an instant redemption facility, which allows investors to redeem up to ₹50,000 per day per scheme. Liquid funds are highly liquid and have no exit load. They should be compared to savings bank returns.
Ultra-Short Duration Fund Ultra-Short Duration Funds are a type of investment fund that invests in debt securities and money market instruments with a relatively short Macaulay Duration, typically between 3-6 months. Also known as liquid plus funds, these types of funds don't have any exit load.
Low Duration Fund Low Duration fund investing in debt securities and money market instruments, like Treasury bills, Commercial papers, and commercial deposits, aiming to keep the Macaulay Duration of the portfolio between 612 months. Most of them don't have an exit load, some may have*
Money Market Fund Money Market Funds are a great way to invest your money if you're looking for short-term gains. These funds invest in money market securities with a maximum maturity of 1 year, making them a good option for those looking to park their surplus cash for the short term. They also tend to be highly liquid, which makes them ideal for emergency funds, and can potentially generate better returns than traditional investment options. Most money market funds don't have an exit load, but some may charge a small fee if you withdraw your money early.
Short Duration Fund Short Duration Funds are a type of investment fund that invests in debt securities and money market instruments, such as corporate bonds and debentures.
The portfolio's Macaulay duration - a measure of a bond's sensitivity to changes in interest rates - is between 1-3 years. Short Duration Funds may carry lower risk and have small exit loads (0.25 to 0.5%, up to six months).
Medium Duration Fund The Medium Duration Fund invests in debt securities and money market instruments, such as corporate bonds, debentures and government securities, with a Macaulay duration of between three and four years. These funds carry medium risk and should be compared to three-year bank fixed deposits.
Medium to Long Duration Fund The Medium to Long Duration Fund invests in debt securities and money market instruments like corporate bonds, debentures and Govt. securities. The fund's portfolio has a Macaulay Duration of 4-7 years, which means it carries medium to high risk. If you want to learn how to analyze debt mutual funds with top 5 metrics, head over the Debt mutual fund analysis blog on LearnApp and pick the best mutual fund for yourself.