What is Debt Mutual funds and Their Types !

What is Debt Mutual Funds | What are different types of Debt Mutual Funds
What is Debt Mutual Funds & their types (Image Source)

What is Debt Mutual Fund?

 Debt Mutual Funds is a scheme that invests in fixed income instruments, such as Corporate & Government bonds, corporate debt securities, and money market instruments etc. Debt Mutual Funds also offers capital appreciation. Debt Funds are also referred to as Fixed income Funds or Bond Funds. 

Types of Debt Mutual Funds

1. Banking & PSU Fund - Bonds of banks, PSU, Public Financial Institutions, Municipal Bonds - 80% of total asset. where on an average 7 - 8 % is received. 

Duration : 6 months to 3 years. (PSU - Public Sector Undertaking. Example : State bank of India.) 

2. Corporate Bond & Debentures 80% of total asset in AA+ rating. where on an average 7 - 8 % is received. 

Duration : 1 Year to 3 years 

Types of Corporate Bonds – Assignment Point
Example of Corporate Bonds 

3. Credit Risk -    65% of total assets in AA and below rating

Credit Risk Examples | Top 3 Examples of Credit Risks with Explanation
Credit Risk Example 
Credit risk funds are debt funds that lend at least 65% of their money to not-so-highly rated companies. The borrowers pay higher interest charges as a way to compensate for their lower credit rating, which translates into a higher risk for the lender due to an increased possibility of default

4. Dynamic Debt - Securities having maturity of 1 day. Dynamic bonds are dynamic in nature means they manage the lending duration dynamically. These funds are constructed in a way that allows fund managers to use interest rates movements in the economy as an opportunity to generate higher returns.

5. Floater Fund - Investment in floating rate instruments - 65 % of total asset in floating-rate bonds. The interest these bonds pay change as the interest rate in the economy change. A periodic resetting of rates to keep them in sync with market rates. 

6. Gilt 10 Years -   10 years Constant Duration 80% of total assets such that Macaulay duration of the portfolio is equal to 10 years. 

7. Liquid – Investment done in Treasury Bills, where on an average 6 - 7 % is receivable . Duration : Maturity up to 91 days (1-90 days) only.

Indian Treasury Bill
Indian Treasury Bill 

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8. Long Duration – Macaulay duration of the portfolio is greater than 7 years.

9. Medium Duration – Macaulay duration of the portfolio is between 3 to 4 years.

10. Mid-long Duration – Macaulay duration of the portfolio is between 4 years to 7 years.

11. Money Market – Money market instruments has a maturity of up to 1 year. 

What are money markets? Definition and meaning – Market Business News
Money Market 

12. Overnight – 
These  type of Debt Funds securities has a maturity of 1 day. 

13. Short Dur Debt Fund – Macaulay duration of the portfolio is between 3 months to 3 years. 

14. Ultra-short Duration - Macaulay duration of the portfolio is between 3 months to 6 months. 

15. Gilt Fund - Government securities (Gsec) 80% of total asset.

How to Invest in Government Securities | Invest in Govt. Bond ...
Types of Government Securities

According to duration Debt mutual Funds can also be divided into following types : 

Types of Debt Mutual Funds
Types of Debt Mutual Funds 

Other Readings  : 



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