Debt Funds

What is a Debt Fund?

A debt fund is a mutual fund scheme that invests in fixed income instruments like corporate bonds, government bonds and money market instruments etc.

How do Debt Funds work?

Debt mutual funds invest in corporate bonds and government bonds. These bonds earn interest income. The yields received by the investors are based on this. are then sold for profit at a certain rate.

Who should invest in Debt Mutual Funds?

Investors who are looking for low risk investment can opt for Debt Mutual Funds.
Debt funds are ideal for short-term inventors. You can invest in debt funds for a short term and then sell them on a profit margin.

Types of Debt Funds

There are different types of debt funds for investment. Here is a list of debt funds:

• Overnight Fund. This fund invests in securities which have a maturity period of 1 day.
• Liquid Fund.
• Ultra-Short Duration Fund.
• Low Duration Fund.
• Money Market Fund.
• Short Duration Fund.
• Medium Duration Fund.
• Corporate Bond Fund.

Risks in Debt Funds

There are plenty of risks in debt funds such as interest rate risk, credit risk and liquidity risk. These risks play an essential role in determining the net value of your assets.

Returns

There are two types of debt fund returns: accrual income and capital gains. Accrual income is generated from the interest payments on its bond holdings and the accrual income is generated when the interest rate changes.

Expense Ratio

The Expense Ratio refers to the cost of asset management which reduces its overall value.

Benefits

There are plenty of benefits offered by Debt funds. These include: -

• Low portfolio risk
• Multiple investment options
• Liquidity
• Low-cost investment