Kolkata: In the domain of mutual funds, debt funds rarely had it so good. In April 2025, debt funds registered inflows of Rs 2.19 lakh crore, a two-decade high. It contrasted sharply with the outflow of Rs 2.02 lakh crore in March 2025.
Debt funds refer to a category of mutual funds which invest mostly fixed-income securities which spans across government bonds, corporate bonds etc. The objective of these funds is to generate a steady income apart from moderate capital appreciation. All investment strategists recommend debt funds to balance an investment portfolio. Let’s see what are the types of debt funds in India.
Categories of debt funds
Significantly, debt funds are also suitable for people with both short-term and medium-term investment horizons. By short-term horizon one means three months to one year and medium-term horizon means three to five years. Most bond funds are critically dependent on the interest rate regime in the economy.
Dynamic bond funds: These are ‘dynamic’ funds and the person managing the fund can change the portfolio constituents according to the interest rate in the economy. They have different average maturity periods. They take interest rate calls and invest in instruments of different maturity periods.
Income funds: Income Funds invest mostly in debt securities that have extended maturities. This renders them more stable than dynamic bond funds and the average maturity of income funds is five-six years.
Short-term and Ultra short-term funds: As the names suggest, these funds invest in debt instruments with shorter maturities. The maturity period is between one year to three years. Short-term funds are ideal for conservative investors. The logic: interest rate movements do not impact them too much.
Liquid funds: These put money in debt instruments with a maturity which is shorter than or equal to 91 days. These are closest to being free from risk. In fact, many experts consider them better than savings bank accounts since they offer the same measure of liquidity and higher yields. Even instant redemption is offered on liquid fund investments by some AMCs.
Gilt funds: Gilt Funds invests only in high–rated government securities with very low credit risk. Hence the name. If the investor is averse to risk, gilt funds can be ideal since a government rarely defaults on a loan, if at all.
Fixed maturity plans: These are closed-ended debt funds. They invest in fixed-income securities such as corporate and government bonds. As the name indicates they have a fixed horizon for which the investor’s investment will be locked. The investment horizon can be in years or months. But one can invest only during the initial offer period and has some similarities with a fixed deposit.
Credit opportunities funds: This is a new category of debt funds. Credit opportunities funds try to earn higher returns by taking a call on credit risks or holding lower-rated bonds with higher interest rates. These are considered relatively a bit more risky.
However, it is always advisable that an individual consults a qualified investment planner in order to decide when and how much to invest in debt funds taking into account the investor’s risk appetite.
Investors seeking lower risk pumped up inflows into debt-oriented mutual fund schemes in April raising it to Rs 2.19 lakh crore which has been found to ne the highest since January 2005. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
