Debt Mutual Fund Safer way of Investment

Debt Mutual funds are majorly a fixed investment security such as treasury bills, government bonds, corporate bonds and many other debt instruments where various time horizons are involved. The one of the most silent features of debt mutual fund is they have a fixed stipulated maturity date and also a fixed interest rate. The returns on debt instruments comprise of income through interest and capital appreciation or depreciation on the market situation and performance. It’s always advised by the market analysts to invest in a debt mutual fund with a good credit rating.

Debt Mutual Fund

Credit rating is issued by independent rating organisations like CRISIL, CARE, and FITCH, etc. Credit rating signifies the ability of the issuer to pay back the debt during a particular period of time. The creditworthiness of a debt instrument issuer is considered important criteria before purchasing a fixed instrument.There is wide range of debt mutual fund suitable for various types of investors.


Type of Debt Mutual Fund


1 Money Market Funds

Money Market Fund

This type of debt mutual funds is usually a short term investment. It’s a good source of investment for people with fluctuating surplus money as the returns are less fluctuating and also a good source of quick profits.

2 Ultra Short Term Funds

As the name suggests these types of instruments bear a maturity of not more than one year. Ultra Short Term Funds are preferred by investors who are willing to marginally increase their risk with an aim to earn commensurate returns. They are also named as treasury bills or liquid plus funds.

3 Floating Rate Debt Funds

Floating Fund

This type of funds has a fluctuating interest rate; the interest paid to the issue depends on the market scenario. The periodic rate of return on this product is in reference number with the market, this type of investment is suitable when the market is giving high returns on interest rates.

4 Short Term Funds

These funds predominately invest in a maturity of maximum three years in nature; these funds usually have an average maturity of over three years which is higher than liquid and ultra-short funds. They also have a potentially higher interest rates and capital gain at the end of the maturity.

5 Income Funds

Income Funds are generally corporate or government bonds wherein the interest rates in highly vulnerable. This type of investment is suitable for the investors who are ready to deal in a long term time horizons.

6 Gilt Funds

These are medium or long-term instruments mainly issued by State or Central governments, they do not have any risk, but they have fluctuating interest rates. The larger the time of the maturity the higher the rate of interest risk, as the market of these types of debt mutual funds are always variable.

7 Hybrid Funds

Hybrid Fund

This fund builds the gap between equity and debt instruments. An investor can mix his investment in equity as well as the debt capital and enjoy a higher rate of interest. But this fund also has the highest risk.
If we talk about the benefits of investing in Debt Capital or Mutual Funds then there are many reasons to look forward to:

  1. Your investments are never affected by equity market as debt capital are interest bearing instruments wherein an investor is the loan provider to a particular company who has issued the bonds and, on the other hand, equity holder are considered as the owners of the company.
  2. Debt Instruments ensure stability to your investment portfolio, in the case of equity the market is highly volatile, and the chances of making losses are also more as compared to the debt capital.
  3. All open-ended mutual funds give you a freedom to withdraw your money as and when required. While the close ended don’t give you permission to withdraw, but they can be obviously traded on the stock market.

We suggest that investment in Mutual funds is always beneficial, but you may or may not answer the question of how and where should you invest to have a financially better prospects of these instruments, so in order to have a clear picture you should seek proper professional advice. Also, you must assess your current situation to distribute your portfolio between equity and debt investments equally. Also, you must seek assistance to select the appropriate fund that matches your need.

Author Bio:- Melanie Godinho is a Certified Financial Planner by qualification and content developer by passion. She work in Financial Hospital She holds expertise in Tax planning and Financial Planning. Follow her on FaceBook

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