What Are Debt Funds & How do they Work? What Are Debt Funds & How do they Work?
Debt Funds or Debt Mutual Funds primarily invest the money in fixed income securities in India like government bonds (Gsec Strips), debentures, corporate bonds and other money-market linked debenture instruments. These funds lower their risk by investing in such avenues. They have relatively low volatility and generate risk adjusted returns over time.
How do Debt Funds Work?
Check this also to know more about bonds. These funds invest in instruments such as Bonds and fixed income securities to generate returns for the investors. These funds buy these instruments and earn interest on the money. The yield that the investors receive is based on this.
Read more - How to profit from rising interest rates
The Bonds portfolio needs to have specific maturity ranges. For example, a liquid fund can buy government securities which have maturities of up-to 91 days. They do not offer assured or fixed returns, unlike Fixed Deposits investment. Their returns can fluctuate. A rise in interest rate positively impacts on the interest income but negative impact on the bond or instrument price. And it’s the other way round when the interest rates fall.
Also Know about government bonds in India, https://www.buzzsprout.com/1922965
What are different types of debt funds? •
Liquid Funds:
This category of funds are considered the least risky among the mutual funds. As the name suggests, they are highly liquid. The portfolio of this fund comprises instruments that have a maturity period of not more than 91 days.