Types of Debt Funds at a Glance

Mutual Fund

Debt Fund is a kind of mutual fund which invests in fixed income securities like gilt funds, treasury bills, bonds, short term plans, monthly income plans, fixed maturity plans, liquid funds and etc. Debt Funds are convenient for short-term or medium-term investments. Short-term investment starts from three months to one year and the medium term starts from three years to five years. Debt funds are like liquid funds for short term investors. Keeping your money on a debt fund is better than keeping your money on a savings bank account. The liquid fund gives 7%-9%  returns and also offers the same liquidity for meeting emergency requirements. Debt Funds are like a dynamic bond for medium-term investors. It gives higher returns compared to bank FD’s. The monthly income plans are also a good option if you want to earn regularly from your investment.

Kinds of Debt Funds

Also like equity mutual funds, debt mutual funds also have types. Below we will discuss kind of debt mutual funds.

  • Dynamic Bond Funds – As by the name we can get at least some ideas about the dynamic bond fund. According to the changing interest rate, regime fund managers keep changing the portfolio composition. It has a fluctuating average maturity period. These funds take interest rate calls and invest in financial instruments for longer as well as shorter maturities.
  • Income Funds- The average maturity for income funds are five to six years. As income funds invest in securities with long term maturities it makes the investment safer.
  • Short-Term and Ultra-Short-Term Debt Funds- these kinds of debt funds have short term maturities which are from one to three years.
  • Liquid Funds-Debt Instrument which has maturity up to 91 days called liquid funds. This is almost risk-free. These funds are better than investing in a savings bank account as they offer same liquidity and high returns. By special debt cards, you can redeem instantly.
  • Gilt Funds- These funds only invest in govt security which comes with very low credit risk.
  • Credit Opportunities Funds- This debt fund is riskier than other debt funds. It is new in debt funds. This fund earns high returns by investing in lower-rated bonds with a higher interest rate. It doesn’t invest according to maturities of debt funds.
  • Fixed Maturity Plans- FMPs are close-ended debt funds. This fund also invests in government securities or corporate bonds, it also has the lock-in period of months or years. You only can make an FMP only during the initial offer period. It gives a good return but there are no guaranteed returns.

Top 3 Debt Funds in 2019

  • Aditya Birla Sun Life Savings Fund
  • Reliance Credit Risk Fund
  • L&T Low Duration Fund

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