All About Debt Mutual Funds

Debt funds are mutual funds investing in debt securities. They are categorized based on the type and tenor of securities they invest in. Debt funds can be used to meet a variety of short and long term investment goals. The tax treatment for these funds is different from equity funds.

We’ve divided the plans based on the risk profile of these funds.


Gilt Funds
Minimum 80% of assets invested in government securities.

Liquid Funds
Open-ended debt scheme investing in debt and money market securities with maturity up to 91 days.

Overnight Funds
Open-Ended scheme investing in overnight debt securities which have a maturity of 1 day.


Fixed Maturity Plans
Investments are made into fixed tenor debt securities that mature around the same time as the fund. Hence, the redemption amount for an investor is in most cases fixed at the start of the fund. This will change if there is a default by any of the invested securities. Funds are not accepted post-NFO. Suitable for investors looking for a fixed return at the time of investment. (Though returns are not guaranteed). 

Diversified Debt Funds
Investments are made in a mix of government and non-government securities such as debentures, bonds, and commercial paper.

Dynamic Debt Funds
These are flexible funds looking for opportunities to earn income and capital gains across segments.

Floating Rate Funds
Invest in floating rate debt securities which are fixed to an external benchmark such as 10 yr Government security. etc.

Ultra Short Duration Fund
Open-ended debt scheme investing in debt and money market instruments with maturity duration between 3 and 6 months.

Low Duration Fund
Open-ended debt scheme investing in debt and money market instruments with maturity duration between 6 and 12 months.

Money Market Fund
Investments made in money market instruments having maturity upto 1 year.

Short Duration Fund
Investments made in debt and money market securities with maturity between 1 and 3 years.

Medium/Long Duration Fund
Investments made in debt schemes with maturity of 1 to 7 years.

Long Duration Fund
Debt scheme investing in securities maturing after 7 years. 

Dynamic Bond Fund
Fund makes investments across tenors. 

Corporate Bond Fund
Open-ended debt scheme predominantly (80%) investing in AA+ and above rated corporate bonds. 

Credit Risk Fund
65% of total assets must be invested in AA and below corporate bonds.

Banking & PSU Fund
Minimum 80 percent of assets invested in debt instruments of banks, public sector undertakings, public financial institutions, and municipal bonds.

Floater Fund
At least 65% assets in floating rate instruments.


Junk Bond Funds
These funds invest in high yield debt securities of companies with low/poor credit rating. Suitable for investors willing to take a high risk. Chances of default are the highest in this category.


Short Term Gains (Less than 3 years): The profit is taxed at the individual income tax slab rate.

Long Term Gains: 20% After Indexation. (Indexation is the method of adjusting the cost of the fund upwards to account for inflation).

Leave a Reply

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