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Types of Debt Mutual Funds to Invest In

by anandsrinivasan846

Debt Mutual Funds are a good investment option to earn reasonable returns while taking care of your risk appetite. Many people consider Debt Funds as a limited investment option. However, that is so not true. You can invest in several debt funds based on your investment goal and horizon. Here we list the types of Debt Funds classified by the Securities and Exchange Board of India.

  • Overnight Funds: If you want to invest in Debt instruments for a short period, consider Overnight Fund. The fund matures within a day, and they carry zero interest rates and credit risk.
  • Liquid Funds: If you wish to meet a short-term financial goal, investing in these is ideal for you. Here, you invest in assets like Government Bonds, Treasury Bills, and certificates. You can hold the fund for a period of 91 days.
  • Low-Duration Funds: Here, you invest in Debt instruments with a shorter investment tenure. These instruments generally have a duration ranging anywhere from six to 12 months.
  • Ultra-Short Duration Funds: Like low duration, these funds have a shorter investment term. You can redeem these investments in a period of three to six months.
  • Money Market: If you have a fair investment horizon, you can invest in a Money Market Mutual Fund. These investment instruments have a maturity up to one year.
  • Short Duration Funds: Do you want to buy an expensive home appliance or save money for a Car Loan down payment? Then you should consider investing in them. Your fund manager invests in Money Market instruments for one to three years.
  • Medium Duration Funds: They are those funds that have an average investment tenure. You can hold such Mutual Fund Investment for three to four years.
  • Medium and Long Duration Funds: These are a combination of both Medium and Long Duration Funds. You can invest in them for a period of four to seven years.
  • Long Duration Funds: Money Market instruments maturing here for seven years or more.
  • Dynamic Funds: You could also invest in Dynamic funds as they invest across duration.
  • Corporate Bonds: Here, at least 80% are invested in Corporate Bonds of the highest rating.
  • Credit Risk Fund: With a Credit Risk Fund, you allocate 65% to Corporate Bonds with a lower rating.
  • Banking and PSU Funds: Here, 80% of your investment focuses on banks and public financial institution holdings.
  • Gilt Funds: With this fund, you invest 80% in G-sec across maturity.
  • Gilt funds with 10 years duration: They work like a Gilt Fund. The only difference is this one has a maturity of 10 years.
  • Floater Funds: Here, you invest a minimum of 65% in floating rate instruments.

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