In order to keep their portfolio diverse and dynamic, investors tend to invest a portion of their funds in debt mutual funds.
Aside from investing in equity schemes to facilitate their portfolio's growth, investors usually hedge their portfolios by getting some exposure to debt mutual funds.
What do these debt mutual funds entail?
Debt funds are the mutual fund schemes that invest their assets primarily in fixed income instruments. The instruments they choose depends on the category of fund.
For instance, a banking and PSU fund invests 80 percent of its assets in debt instruments of banks, public sector undertakings and public financial institutions.
Similarly, a corporate bond fund invests 80 percent of its assets under management (AUMs) in corporate bonds. Likewise, gilt funds are mandated to invest 80 percent of its assets in the government securities (G-Secs) across maturity.
There are a total of 315 debt schemes across categories with total assets to the tune of ₹11,81,982 crore as on Mar 31, 2023, shows the AMFI (Association of Mutual Funds in India) data.
Categories of debt mutual funds:
Overnight fund: These are the funds which invest in overnight securities having maturity of one day.
Liquid Funds: These are the funds that make investment in debt and money market securities with maturity of up to 91 days only.
Ultra short duration fund: These are the funds that make investment in debt and money Market instruments such that the Macaulay duration of the portfolio is between 3 months - 6 months.
Low duration fund: These are the funds that make investment in debt and money market instruments such that the Macaulay duration of the portfolio is between 6 months - 12 month
Money market fund: These are the funds that invest in money market instruments having maturity up to one year.
Short duration fund: These funds make investment in debt and money market instruments such that the Macaulay duration of the portfolio is between 1 year –3 years
Medium duration fund: These funds make investment in debt and money market instruments such that the Macaulay duration of the portfolio is between 3 year – 4 years
Medium to long duration fund: These funds make investment in debt and money market instruments such that the Macaulay duration of the portfolio is between 4 year – 7 years
Long duration fund: These funds make investment in debt and money market instruments such that the Macaulay duration of the portfolio is greater than seven years.
Dynamic bond: These are the funds which invest in open ended dynamic debt schemes across duration.
Corporate bond fund: These mutual funds make a minimum investment in corporate bonds – 80 percent of total assets (only in highest rated instrument).
Banking and PSU fund: These funds make a minimum investment in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions 80 percent of total assets.
Gilt Fund: These funds make a minimum investment in government-securities i.e., 80 percent of total assets (across maturity).
Floater fund: These funds make their investment in open ended debt schemes predominantly investing in floating rate instruments i.e., a minimum of 65 percent of total assets.
