What are the different types of debt funds in India?
The various types of debt funds available for investments in India play a crucial role in investors’ portfolios, providing a relatively better return potential while seeking to minimize risks associated with the volatile equity market. While the different types of debt funds cater to a wide range of investment objectives and risk appetites, it's essential for investors to align their investment goals and risk tolerance with a suitable scheme.
Here are the different types of debt funds you can consider:
Few types of debt funds:
Liquid funds: Liquid funds are a relatively stable and liquid investment option. They primarily invest in short-term money market instruments, such as treasury bills and certificates of deposit with up to 91 days maturity. Investors seeking relative stability and easy access to funds often opt for liquid funds.
Ultra-short duration funds: These funds have a slightly longer investment horizon compared to liquid funds. They invest in short-term debt securities, offering a slightly reasonable return potential compared to liquid funds. Ultra-short duration funds are suitable for investors with a short to medium-term investment horizon.
Short duration funds: Short duration funds invest in a mix of short to medium-term debt instruments. They aim to strike a balance between returns and risk. These funds can be considered by conservative investors looking for relatively reasonable returns.
Medium duration funds: Investors with a moderate risk appetite can consider medium duration funds. These funds invest in a mix of medium-term debt securities, offering a potentially higher yield compared to short-duration funds albeit at a higher risk.
Long duration funds: Long duration funds are tailored for investors with a longer investment horizon. They primarily invest in long-term government and corporate bonds. While they offer the potential for higher returns, they are also subject to interest rate risk.
Credit risk funds: Credit risk funds invest in lower-rated corporate bonds, offering the potential for higher returns. However, these plans are associated with a higher credit risk, making them suitable for investors with a higher risk tolerance.
Dynamic bond funds: Dynamic bond funds have the flexibility to invest across the entire duration spectrum, allowing fund managers to adapt to changing market conditions. These funds aim to potentially optimize returns by actively managing the portfolio.
Fixed maturity plans (FMPs): FMPs have a fixed investment tenure and primarily invest in debt instruments with a similar maturity profile. They offer potentially reasonable returns.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.