DEBT MUTUAL FUNDS AND TYPES OF DEBT MUTUAL FUNDS

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  • Post last modified:20/09/2021

When We Think About Mutual Funds Most Of The Retail Investors Only Know About Equity Mutual Funds Like Large Cap Funds, Small Cap Funds, Mid Cap Funds Or Multi cap Funds But Not About Debt Mutual Funds.

But Most Of The Retail Investors Didn’t Know That AUM ( Assets Under Management ) In Debt Mutual Funds Is Way More Than Equity Mutual Funds.

In This Article, You Will Learn About What Are Debt Mutual Funds And Different Types Of Debt Mutual Funds.

Debt Mutual Funds

Debt Mutual Funds

In Mutual Funds, There Are Different Types Like Equity Mutual Funds, Hybrid Mutual Funds, Solution-Oriented Mutual Funds, Debt Mutual Funds, And Other Funds. But Maximum Share Of Mutual Funds Industry Belongs To Debt Mutual Funds.

Now You Might Think That Most Of The Retail People Are Investing In Equity Mutual Funds Like Large Cap, Small Or Mid Cap Funds Then Who Are Investing In Debt Mutual Funds And Why The Share Percentage Of Debt Mutual Funds Is Higher?.

In Debt Mutual Funds Mostly HNIs And Corporates Will Invest.

Basic Terms In Debt Market

In Simple Terms Firstly Understand What Is Debt, Debt Is Nothing But Borrowing And Lending Money, The Lender Means Who Are Giving Money To The Borrower.

The Lender Will Charge Some Interest For That Money. In Bond Market, The Interest Is Simply Known As Coupon Rate.

The Borrower Takes The Money From Lender. So There Will Be A Contract Like Within One Or Two Years He Will Give Back The Money. Here The time Is Called Tenure.

If A Company Wants To Raise Money For Business Expansion. The Company Can Issue Bonds To Public By Offering Some Interest.

Who Issues Bonds To Public ?

Bonds Are Issued By Government Organizations And Corporates.

Bonds Issued By Government Organizations

Central Government: Central Government Will Issue Bonds To Public To Raise Money. So Central Government Will Use That Money For Welfare Schemes And Country Development.

The Government Will Get Money From Tax Payers In Form Of Tax. But Still, If Government Needs More Money Then The Govt Can Issue Bonds. These Bonds Are Also Known As G-SECS ( Government Securities ).

State Government: State Government Also Issues Bonds To Public. And Use That Money For Welfare Schemes And For State Development.

Municipalities: Municipalities Also Issues Bonds To Use For Their Expenses.

Bonds Issued By Corporates

Public Sector Unites: For Example Companies Like NTPC, PFC Issues Bonds To Use That Money For Their Business Expenses Or Expansion.

Private Companies: Private Companies also Issues Bonds For Their Business Expenses.

Private Or Public Sector Banks: In Bond Market, These Bonds Are Known As Certificate Of Deposits, Private Or Public Sector Banks Issues Bonds For Their Business Expenses.

Types Of Debt Mutual Funds

Types Of Debt Mutual funds

There Are Different Types Of Debt Mutual Funds To Understand Easily, Firstly We Will Divide Them Into Two Types As Debt Funds For Short Term Investment And Debt Funds For Long Term Investment.

Select Funds Which Are Matching With Your Investment Time Frame. For Example If Your Investment Period Is 3 To 6 Months Then Choose Funds Which Have The Same Duration.

Here Securities Means Corporate Bonds Or Government Securities ( G-SECS ).

Debt Mutual Funds For Short Term Investment

Overnight Funds

In This, The Fund Manager Needs To Select Securities Which Will Have One Day Maturity. Therefore If Your Investment Time Is In Days Then You Can Invest In Overnight Funds.

Liquid Funds

In This Type Of Funds, The Fund Manager Can Invest In Any Type Of Securities Which Will Have The Maximum Maturity Duration Of 91 Days And Below. But In This Type Of Funds There Will Be Exit Load Up to One Week.

Therefore If You Want Your Money Back Within One Week You Need To Pay Some Percentage Of Your Amount As an Exit Load.

Ultra Short Duration Funds

In This Type Of Funds, The Fund Manager Can Only Invest In Securities Which Will Have a Maturity Duration Between 3 To 6 Months. So If Your Investment Duration is Also Between 3 To 6 Months Then You Can Invest.

Low Duration Funds

In This Type Of Funds, The Fund Manager Can Only Invest In Securities Which Will Have a Maturity Duration Between 6 To 12 Months.

So If Your Investment Duration Is Also Between 6 To 12 Months Then These Funds Are Best For You In Debt Mutual Funds Category.

Money Market Funds

In This Type Of Funds, The Fund Manager Can Only Invest In Securities Which Will Have a Maturity Duration of Up to One Year.

Short Duration Funds

In This Type Of Funds, The Fund Manager Can Only Invest In Securities Which Will Have a Maturity Duration Between 1 To 3 Years.

So If Your Investment Duration Is Also Between 1 To 3 Years Then These Funds Are Best For In Debt Mutual Funds Category

Debt Mutual Funds For Long Term Investment

Medium Duration Funds

Similarly, In This Type Of Funds, The Fund Manager Can Only Invest In Securities Which Will Have a Maturity Duration Between 3 To 4 Years.

Medium To Long Duration Funds

In This Type Of Funds, The Funds Manager Can Only Invest In Securities Which Will Have a Maturity Duration Between 4 To 7 Years.

Long Duration Funds

In This Type Of Funds, The Fund Manager Can Only Invest In Securities Which Will Have a Maturity Duration Above 7 Years.

Dynamic Bond Funds

In These Types Of Funds, There Are No Restrictions. The Fund Manager Can Invest In Any Type Of Securities.

Gilt Funds

In This Type Of Funds, a Minimum of 80% Of The Funds Is Invested In G-SECS ( Government Securities ).

Gilt 10 Years Funds

In These Types Of Funds, Minimum 80% Of The Funds Are Invested In G-SECS ( Government Securities ). But With A Maturity Duration Of a Minimum of 10 Years.

PSU And Banking Funds

In This Type Of Funds, a Minimum of 80% Of The Funds Is Invested In PSU Securities Like NTPC, PFC, Or In Bank Securities.

Floater Funds

Similarly, In This Type Of Funds, a Minimum of 65% Of Total Funds Are Invested In Floater Rate Instruments.

Corporate Bond Funds

Similarly, In Types Of Funds, a Minimum of 80% Of Total Funds Are Invested In Highest Rated Corporate Bonds.

Credit Risk Funds

Similarly, In This Type Of Funds, a Minimum of 65% Of The Funds Are Invested In Below Highest Rated Corporate Bonds.

As This Are Low Rated Bonds The Risk Is Higher. While Selecting These Type Of Funds Select Funds Funds Which Are More Diversified. Means The Funds Are Invested In Maximum Securities.

Because By Any Chance In Any Company Defaults Also The Impact Will Be Lesser.

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