Going Through Debt Funds And What To Consider As a Promising Investor

debt funds

Just like the field of equity mutual funds, debt mutual funds are also available in so many types for you to see. The main differentiating factor between the debt funds has to be the maturity period associated with the instruments they are currently investing in. For some people, this is a completely new chapter with no clue whatsoever. But for the equity investor, this type of information is just one piece of cake. But before you get any further with this kind of information, it is mandatory that you learn more about the debt funds first.

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Focusing on the dynamic bond funds:

As you can understand from the name itself, these are mostly termed as dynamic funds, which mean that the fund manager will keep changing portfolio composition as per the changing interest rate form of regime. Dynamic bond funds will have fluctuating average maturity period as these funds will often take interest rate calls and will invest in instruments for longer and even for the shorter maturities.

Going through the income funds:

Income funds can often come handy dandy with a call on interest rates and will mostly invest in debt securities with various maturities. However, most often, income funds will invest in securities, which will have longer maturities. This will make them more stable when compared to the dynamic form of bond funds. The current and average maturity of the income funds is around 5 to 6 years for sure. For some more ideas, you can log online at nationaldebtreliefprogram.com and get into some details.

Also Read: Best Tax Saving Investment option under Sec 80C

More about ultra short term and short term debt funds:

These are mainly defined as debt funds which will invest in instruments with the shorter maturities. It will range from around 1 to 3 years. Short term funds are mainly for conservative investors as these current funds are not affected majorly by the interest rate movements.

Time for liquid funds:

Liquid funds mainly invest in the field of debt instruments with the maturity of not more than 91 days. It makes them almost risk-free in nature. Liquid funds will have negative returns, which will come across quite rarely. These funds are often termed to be good alternatives to some of the saving bank account as they are willing to offer similar liquidity and also higher returns at the same time. There are so many mutual fund companies, which are offering instant redemption on the current liquid fund investments through some special debit cards.

Gilt Funds and things to know:

The field of Gilt Fund will solely invest for government securities. These securities are mainly termed to be highly rated ones and available with a lower credit risk. It is mainly because the government seldom defaults on the current loan as it might take in form of the debt instruments. It will make gilt funds ideal for some of the risk adverse form of fixed income investors.

Going under the credit opportunities funds:

These are mainly relatively newly formed of debt funds. Unlike any of the debt funds, these credit opportunities funds will not invest as per the maturities based on the debt instruments. These funds are mainly designed to try earning higher returns by just taking calls on credit-based risks. These funds are often known to hold some of the lower-rated bonds, which will otherwise come handy with a higher form of interest rates. Credit opportunities funds will be noted to be a relatively riskier form of debt funds.

Heading towards fixed maturity plans:

Fixed maturity plans or as known as FMP are known to be closed-end debt funds. These funds are known to invest in the currently fixed income securities like the government securities and corporate bonds, but they even come handy with lock-in. All the FMPs comprise the fixed horizon for which the money will be locked in for a certain period. This horizon can be for years or months. Investments in the field of FMPs can also be made during the initial form of the offer period. FMP is mainly like fixed deposit, which can always deliver tax efficient and superior returns but will not guarantee any return.

Also Read: Top 5 Small Saving Schemes in India

What to consider when playing the role of an investor:

So, you have made up your mind to be an investor and things will definitely start working in your favour. But, before getting into that shoe, there are some things for you to consider first. Learning more about those options beforehand will prepare you for the worst and you will not be in any kind of trouble for sure.


Debt funds will always suffer from interest rate and credit risks which make them quite riskier than any of the bank FDs. in the field of credit risk, the fund manager is the one investing in low credit rated form of securities, which will have some higher probability of the current default. In this field of interest rate risk, the bond prices are likely to fall mainly because of an increase in this area of interest rate.


Even though debt funds are stated to be fixed income havens, but they are not usually going to offer you with guaranteed returns. The NAV or the Net Asset Value of debt fund mainly tends to fall with rising in the current overall interest rates in the economy. Hence, they are mainly suitable for the falling of the interest rate regime.

Checking on the cost:

Debt funds will definitely charge you with a fee, which is designed to manage money called expense ratio. Some financial institutions had mandated the upper limit of the current expense ratio to 2.25%. Considering the current lower returns as generated by the debt funds when compared to the field of equity funds, long-term form of holding period might help in recovering money gone out by way of the present expense ratio.

You need to be sure of these points first if you want to hold the position of an investor in debt funds. The more you come to know the better investment will take place from your side.

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