Different Types of Debt Funds
By admin_mutual | Jan 10, 2023
A debt fund is a mutual fund scheme, and is constituted of investing in debt securities such as money market instruments, corporate debt securities, corporate and government bonds etc.
Types of Debt Funds
These different mutual funds schemes include:
Overnight Fund
This fund makes investments in securities with a one-day maturity period. Due to their short maturity periods, Overnight Funds have low credit and interest rate risk and are therefore seen as being relatively stable.
Liquid Fund
Liquid Fund only invests in debt and money market securities with residual maturities up to 91 days. The underlying instruments have a reasonable degree of liquidity and the potential to provide reasonable returns compared to more conventional routes. Some liquid funds also offer an instant redemption option that permits redemptions of up to 50,000 per day per scheme and per investor.
Ultra-Short Duration Fund
In order to keep the portfolio’s Macaulay Duration between 3-6 months, the Ultra-Short Duration Fund makes investments in debt securities and money market instruments. Fund with Low Duration. Low Duration Fund invests in debt securities and money market instruments so that the portfolio’s Macaulay Duration is between 6 and 12 months.
Money Market Fund
With a maximum maturity of one year, money market securities are where Money Market Fund invests. This fund is a viable option for short-term money storage. Because it is potentially more profitable than conventional methods and is relatively highly liquid, it can also be used as an emergency fund.
Short Duration Fund
In order to keep the portfolio’s Macaulay Duration between 1-3 years, the Short Duration Fund makes investments in debt securities and money market instruments.
Medium Duration Fund
The Macaulay Duration of the portfolio of investments made by the Medium Duration Fund, which invests in debt securities and money market instruments, ranges between three and four years.
Corporate Bond Fund
Corporate Bond Fund mainly invests in corporate bonds with ratings of AA and higher. Investors looking to invest in papers with comparatively lower credit risk and a moderate appetite for risk should consider this option.
Credit Risk Fund
Except for corporate bonds with an AA rating, this fund primarily invests in papers with a rating of AA and lower. Credit Risk Fund invests in papers that have comparatively higher interest rates in an effort to increase returns. Comparatively speaking to other debt funds, they do carry credit risk.
Banking & PSU Fund
At least 80% of the assets in the Banking & PSU Fund are allocated to debt and money market securities issued by banks, public financial institutions, PSUs and municipal bodies.
Dynamic Bond Fund
A dynamic bond fund invests in debt instruments with varying maturities based on market interest rates. Depending on the interest rates, the fund manager makes dynamic changes to the portfolio. Investors looking to earn a consistent income over the medium term and with a slightly moderate risk tolerance should consider these funds.
Gilt Funds
At least 80% of the assets in a gilt fund are placed in government securities of various maturities. Given the exposure to sovereign papers and the low credit risk, they are regarded as one of the more stable investments. Due to this, investors who are risk averse should consider gilt funds.