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What is a debt fund?

Debt funds are mutual funds which invest in fixed income securities such as bonds, money market instruments (treasury bills, government bonds, non-convertible debentures) or even a combination of the two.

A debt fund which invests in money market instruments is called a liquid fund. A liquid fund ensures that the principal amounts you have invested are safe. It also gives a decent return as its earnings are from interest.

Why invest in Debt Funds

Safer than Equity

Investments in debt funds are not affected by volatility in the stock market. This reduces risk in your investment.


Stable Returns

You get lesser but more stable returns, than equity. You replace volatility with stability. Debt funds are more liquid than fixed deposits.


You can invest small amounts regularly through the SIP route. Whenever you have extra money, you can invest it in debt funds.

Taxation Benefit

The profit you make in the long term is taxed with an indexation benefit. You save on your taxes.

Types of Debt Funds

Fixed Maturity Plans

Fixed maturity plans are closed ended and invest in debt which matches the term of the scheme.

Fixed maturity plans have tenures ranging from 3 months to 5 years. You must invest in a Fixed maturity plan which matches your financial goals.

Income Funds

Income funds invest in Government bonds, securities and even corporate debentures. They invest across a wide range of maturities. They invest in short term instruments of 1-2 years and also in long term instruments of 10-15 years.

Short Term Fund

They invest in debt such as bonds, commercial paper and certificates of deposit with a maturity of 3-6 months.

Taxation of Debt Schemes

Short term capital gains (gains under 3 years), are added to your taxable salary. Taxed as per income tax slab you fall under. Long term capital gains (gains over 3 years), are taxed at 20% with indexation.


Concepts & FAQ's Debt Funds

What is a Debt Mutual Fund?

Debt Mutual Funds are those funds in which the pool of money of the investors is invested in mainly in short-term or long-term bonds (Government or Corporate) etc. This is done to provide a fixed income. The main objective of a debt fund is preservation of capital and generation of income on a steady basis.

What are bonds?

Sometimes large organizations or even countries need money for various purposes. The solution is to raise money by issuing bonds to a public market. Thousands of investors then essentially provide or loan a portion of the capital needed. By purchasing bonds an investor becomes a creditor (i.e gives Debt) to the corporation or government for which he/she is entitled to a fixed interest after a certain period (maturity).

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What is the advantage of buying bonds (debt) over buying stocks (equity)?

The main advantage of being a creditor is that you have a higher claim on assets than shareholders. Therefore even in case of bankruptcy, a bondholder will get paid before a shareholder. Thefore buying a bond (debt) involves less risk than buying stocks (equity). However, the bondholder does not share the profits if a company does well.

For whom are Debt Mutual Funds suitable?

Bonds are known as fixed-income securities because the exact amount of cash one gets back if one holds the security until maturity is known. Debt Mutual Funds are suitable for conservative investors and retirees. It is also suitable for those investors who are looking for a certain return of their investment in a short period of time.

Frequently Asked Questions

What are Debt Markets and Debt Market Instruments?

Typically those instruments that have a maturity of more than a year are called debt market instruments. The main types are - Government Securities (G-secs or Gilts) Like T-bills, gilts are issued by RBI on behalf of the Government. These instruments form a part of the borrowing program approved by Parliament in the Finance Bill each year (Union Budget). Typically, they have a maturity ranging from 1 year to 20 years. Like T-Bills, Gilts are issued through the auction route but RBI can sell/buy securities in its Open Market Operations (OMO). OMOs include conducting repos as well and are used by RBI to manipulate short-term liquidity and thereby the interest rates to desired levels The other types of Government Securities are Inflation linked bonds Zero coupon bonds State Government Securities (State Loans)

What are debt funds?

Debt funds are those funds which invest a majority of their assets into fixed income bearing instruments such as bonds, debentures, government securities, certificates of deposit, commercial papers and other money market instruments. Debt funds are also called income funds as they normally provide a stable income to the investors, while minimizing the element of risk.

How can a fund's performance be tracked?

A fund's performance can be tracked by tracking its NAV. The NAVs are calculated usually on a daily basis and the fund's performance can either be measured against various benchmarks such as a stock market index like the Sensex, Nifty, BSE 200, etc.

What is NAV?

Net Asset Value (NAV) of a fund is the total market value of all the investments of the fund (minus its expenses) divided by the number of units outstanding, on that given day. Buying and selling of mutual funds, as well as its performance is based on its NAV.

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Debt Funds Articles

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MF Investors in Kotak Debt Plans Get a Scare

11 April 2019, Thursday    

Debt Funds are in a mess. After the IL&FS Fiasco it’s the time for the Zee horror show. Many investors stashed their savings in liquid funds. Liquid funds invest in debt funds of short maturity which offer high liquidity and safety. Now these investors feel betrayed. Investors got a sho ....

Types Of Debt Instruments

29 June 2009, Monday    

Debt Instruments are obligation of issuer of such instrument as regards certain future cash flow representing Interest & Principal, which the issuer would pay to the legal owner of the Instrument. Types of Debt Instruments are of different types like Bonds, Debentures, Commercial Papers, Certi ....

What is Debt? How To Avoid Bankruptcy?

12 September 2009, Saturday    

In this Article we are introducing you a new concept Called “Debt Doctors”. Debt Doctors are very common in foreign countries like UK & US. But it is not common in India we expect this will be a reality in India very soon. Debt Doctors help individuals to solve their debt related p ....


Debt Funds News

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BSE launches mobile app for its mutual fund platform

Thursday, May 16, 2019, 2:52 PM

Leading stock exchange BSE said it has launched 'BSE StAR MF' app to enable more participation and help mutual fund distributors process transactions faster. "BSE StAR MF mobile app supports real-time client registration and paperless transactions, creates and uploads mandate for SIPs, generates the basket of multiple orders, tracks and allows the distributor to analyse his business at his fingertips," the exchange said.

Bharat-22 ETF additional sale on Feb 14, govt to raise Rs 3,500 cr

Tuesday, February 12, 2019, 1:14 PM

The government will launch an additional offering of Bharat-22 ETF on February 14 to raise at least Rs.3,500-crore, officials said. The ETF sale would be for a single day, in which both institutional and retail investors can participate, they said. Since this is an additional on-tap offering of Bharat-22 ETF, the issue would open for a single day for both institutional and retail buyers.

Sebi looks to tighten rules for liquid funds

Wednesday, January 16, 2019, 5:54 PM

Securities and Exchange Board of India may soon tighten norms for liquid funds, the most popular mutual fund product among institutional investors with average assets under management of over Rs 6 lakh crore. Some of the proposals that the capital market regulator is considering for liquid schemes are mandatory minimum investments in short-term government bonds and stricter valuation norms, said the source.


Debt Funds Videos

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Debt Funds Education

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What is a Systematic Investment Plan?

Wednesday, September 5, 2018, 5:27 PM

A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and helps you inculcate the habit of saving and building wealth for the future.

What is Net Asset Value (NAV)?

Wednesday, September 5, 2018, 11:18 AM

NAV is the total value of all the mutual funds assets minus the value of all its liabilities per unit. It is the price at which you buy or sell units of a mutual fund. The assets of a mutual fund are securities like equity shares, bonds, commercial papers and debentures. Accrued interest and dividends are also the assets of the Mutual Fund.

Benefits of making a nomination for a mutual fund

Saturday, April 28, 2018, 2:37 PM

If a nomination is made for mutual fund, the funds can be easily transferred to the nominee. If something happens to the investor and the nomination is not made, it will be difficult for heirs to claim the mutual fund investment. They have to submit documents such as WILL and NOC from other heirs to get the mutual fund investments transferred to their name.



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