Debt Mutual Funds Classification

Debt funds classification

Debt mutual fund invests mainly in debt or fixed income securities such as treasury bills, corporate bonds, government securities, and money market instruments that have various time horizons. Investors choose these funds as they are unaffected by market volatility, provide stability to asset portfolio, receive a tax deduction and have high liquidity. The reason behind investing in debt fund is to earn interest income and capital appreciation. Here is the debt mutual fund classification.

Types of debt funds:

1. Short term and Ultra short term debt funds

Wherein these debt funds are invested in instruments with shorter maturities, ranging between 1 to 3 years. Short term funds are for conventional investors where are not affected by the movement in interest rate. Ultra short-term mutual funds are those which invest in fixed-income earning instruments of maturity up to six months.

2. Liquid funds

Liquid funds are being invested in debt instruments with maturity, not more than 91 days. Liquid funds are risk-free funds, liquid funds are better than saving your money in the bank account because rarely they have negative returns.

3. Income funds

Income funds can also take a call on interest rates to invest in debt securities with different maturities, but often income funds are for long term maturities. The average maturity of income funds is around 5-6 years.

4. Dynamic bond funds

Dynamic bond funds keep changing portfolio composition according to changing interest. These bonds have a fluctuating average maturity period because it takes interest call into consideration and invests for longer as well as shorter maturities.

5. Gilt funds

Gilt funds are invested in government securities, where high rated securities with low risk. They provide moderate returns as they invest in an asset with better quality. Though the returns are considerable, they are not fixed as they are subjected to change due to interest rate fluctuations.

6. Fixed maturity plan(FMP)

Fixed maturity plans are closed-ended debt funds. These funds also invest in fixed income securities like corporate bonds and government securities. They are lined with time duration. An investor can only invest in the initial offer period. They are considered the same as a fixed deposit which gives tax benefits but doesn’t guarantee the returns.

7. Credit opportunities plans

These funds are newer debt funds. Unlike other debt funds, credit opportunities fund don’t invest according to debt instruments. These funds earn higher returns by taking a call on credit risks or by holding lower-rated bonds. Credit opportunities are risky than debt funds.

MyWay

To get access to top recommended Debt Mutual Funds, MyWay Wealth is a one-stop destination. From liquid debt funds which are lower risk funds, Gilt- a medium and long term which are government securities, short term – where you can park your money for 1-3 years, Ultra short term wherein you can park your money for 3-6 months, and credit opportunities wherein there are corporate bonds and debenture. All you need is a few minutes to complete your KYC process, input your contribution and you’re all set to invest in MyWay Wealth.

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