Debt Mutual Fund Meaning

What is Debt Mutual Fund? Types and Invest

Updated on

Debt Mutual Funds  in India

Whether its Bank or Post Office, the rate of interest is very low and day by day it is decreasing.  There is share market to invest and you can expect higher income ratio than other areas but where there is higher income there is maximum risk. Here you can choose debt mutual fund

Debt Mutual Fund Meaning

Debt mutual fund is one of popular mutual fund in recent days. In this fund  FUND MANAGER  invest money in fixed income instrument like Government Bond, Corporate bond, PSU bond, treasury bill, commercial paper etc. A few major advantages of investing in debt funds are a low-cost structure, relatively stable profits and reasonable security. If you have been saving with traditional investment products such as Fixed Deposits or Bank Savings Deposits, and are looking for stable profits with low volatility, then Debt Mutual Funds Scheme may be a better options for you.

Government Bonds

A government bond is essentially a contract between the issuer and the investor, in which the Government (issuer) assures repayment of principal and the interest-earning at the maturity date. Risk investors prefer to diversify some of their investments with certainties, can look to invest in this type of securities. The Government of India has taken several measures to ensure that make G-Secs attractive and simple among retail investors.

Corporate Bonds

Companies   are issued Corporate bonds by for raising fund for various reason like for business expansion, building a new plant or project, operating expences. One can expect an average yield of 8-10% from corporate debt instruments. Corporate Bond financing guarantees a much higher return than other debt instruments on the market. Corporate Bonds have a corresponding risk lower than regular investments like stocks. Duration of bonds are different like short-term, medium, and long-term bonds and perpetual bond on the market etc.


PSU bonds are medium- and long-term bonds issued by public sector enterprises  in which government is holding shares usually more than 51%. Investors, who continue to hold gains on bonds for more than three years, usually have to pay 20% tax on long-term capital gains with indexation benefits. The annual profits offered on these products range from 8% to 9%. It has a low risk of default as it is supported by the Government.

Commercial Paper

Commercial paper is one type of debt instrument issued by a corporate house that matures less than one year.

Treasury Bill

Treasury bill is a form an integral part of the money market. It is a  Debt obligation of the Government issued at a discount to the face value with maturities of less than one year. It is a  short-term obligation of the Government.

Types of Debt Funds

Liquid Funds

Liquid funds are one type of debt scheme that invests in debt instruments that get matured within 91 days. These funds are considered to be among the minimum risky within mutual funds. It is a type of debt mutual fund which are highly liquid.  Investors can withdraw a maximum of Rs.50,000 as an instant liberation facility from some liquid funds. Here, the risk is low, yields are also low. Liquid funds are better alternatives to savings bank accounts as they provide similar liquidity with higher yields. Also, many mutual fund houses instantly redeem liquid fund investments.

Short- Term Fund

These funds are suitable for investors who are willing to take a lower risk because their prices are less affected by interest rate risk(change in interest rates). All these debt funds come with a maturity period of 1-3 years. These funds are invested in short-term instruments and long-term bonds and other securities such as debentures, government bonds, corporate bonds, etc.

Medium-term funds

This fund comes with a maturity of 3 to 5 years. For a medium-term investor, debt instruments such as dynamic bond funds which are ideal for riding the interest rate volatility. When compared with bank Fixed Deposits, debt bond funds provide higher returns. If you are looking to earn regular income from your investments, then Monthly Income Schemes can be a better option.

Long  term funds

This fund comes with a maturity beyond 5 years. This fund comes with a maturity beyond 5 years. Medium and long-term funds are comparatively riskier than short-term funds mainly because Long duration might impact interest rates (as interest rates are volatile). This is also known as interest rate risk or duration risk. This is also known as interest rate risk or duration risk.

Dynamic bond funds

In dynamic bond funds, depending upon their forecast on interest rates the fund manager changes the maturity of the portfolio. If interest rates rise, the maturity is shorter and if interest rates started falling, the maturity becomes longer. These funds are ideal for investors who can tolerate medium risk and investment space for 3-5 years. Fund managers change the structure of the portfolio according to changing interest rates. These funds are little bit riskier than short-term debt funds.

Fixed Maturity Plans

FMPs invest in debt instruments like corporate or government bonds, and other money market instruments. The goal of FMP is to make calls according to the interest rate cycle and select the right investment options that will bring the best return to investors. If you are an investor who wants to be safe from interest rate fluctuations and wants to invest for a long duration (more than three years) FMPs would yield better rates.



Normally the tenure of these funds are from shrort term to long term and the profit percent is approximately 8 – 10 %. No doubt the return is very lucrative and very popular to investors (who do not want to take risk).


The return of these funds depends on how many days the investors want to invest the amount. If investors planning to invest for 3- 5 years then up to 10 % profit can be earned. Of course, the return ratio depends on the current market situation. 


As we know debt mutual fund is comparatively more stable than equity fund but, still there are some point of risk associated in it. Because sometimes these instruments of bond and money market may not able the pay back to investors timely. As we know investors always have a risk of markets ups and downs. An investor can choose a fund based on their risk capacity (like AAA, AA, BBB, etc.).


Mainly there are two types of expenses in the fund one is expense ratio and other is exit load.

Expense Ratio

Expense ratio means the fund manager fees to maintain the account which is more or less 0.25 percent to 1 percent and the amount is deducted from your payable amount.

Exit Load

Exit load means if any investor wants to exit from his given time of investment then a certain amount is deducted from his payable amount.

Read Also: Flexicap mutual funds in India: 70-80% returns delivered in the last one year

All the information are used for education purpose only. Investing in mutual funds poses a risk of financial losses. Investors must therefore exercise due caution. InvestoAxis is not liable or responsible for any losses caused as a result of decisions based on the article.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related posts

Best Stocks to Invest in 2022
Best Stocks to Invest in Right Now During Covid
Best Ways to Earn Passive Income With Crypto in 2022
Best Ways to Earn Passive Income by Investing in Crypto!
Top 10 Best Performing Mutual Fund To Invest In 2022
Top 10 Best Performing Mutual Fund To Invest In 2022
Dogecoin and Its Price Prediction From 2022 to 2025
Dogecoin and Its Price Prediction From 2022 to 2025
Top Cheap Dividend Stock to Buy in 2022
Top Cheap Dividend Stock to Buy in 2022– Easy Earning while Sleeping
Best Dividend Stocks to Buy and Hold Now in 2022
Best Dividend Stocks to Buy and Hold Forever in India 2022
Best ETF Funds to Invest in 2022 India
Best ETF Funds to Invest in 2022 India
Best Investment Plan for Retirement in 2022
6 Best Investment Plan for Retirement in 2022
e-SHRAM Card – How To Apply Online

Now Investment become Simple

Join InvestoAxis and get financial dose with latest original fresh content. We will never spam you.

Be a part of our ever-growing community. Join us on Twitter.


We would like to keep you updated with special notifications.