A debt fund is a mutual fund that invests in several fixed income bonds and deposits for its investors, including corporate bonds, treasury bills, government securities, etc. Following are the types of debt funds:
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Income debt funds invest in debt securities of varying maturity periods but are mostly 5-6 year long-term average maturities.
Dynamic Bond Funds
Dynamic bond funds change rapidly through long-term and short-term funds with different maturity profiles. Dynamic bond funds switch through all types of debt and money market instruments, which depend on interest rate fluctuations.
Short term debt funds have a maturity period of between 1 and 3 years. They invest in instruments on government securities, debt, and money market.
Ultra-short-term funds are debt funds with short maturities but typically less than one year.
Liquid debt funds can quickly convert to cash with the 91-day maturity period, which is a short period. The savings are in Treasury bills, CDs, or certificates of deposit.
Fixed Maturity Plans
Fixed maturity plans or FMPs have a specified lock-in period. This can range from months to years. FMPs are not affected by changes in interest rates due to the lock-in era.
Gilt debt funds invest only in securities issued by central governments and states. The maturity period is medium to long.
Credit Opportunities Fund
Credit opportunities funds invest in various instruments. To attract high interest, investment varies from short to long term.
Mutual funds that aim to invest in a particular sector are called sectoral funds. Such funds invest only in businesses that operate in a specific industry or market. Here we can understand with an example, and a sector fund may invest in industries such as pharmaceutical, banking, construction, or FMCG, among many others.
On the other hand, thematic funds are those that invest in stocks based on a given theme. The subject chosen by these funds may concern areas such as rural consumption, resources, security, etc. A thematic fund, for example, may focus on rural consumption and invest in funds from all sectors that support the theme.
Balance or hybrid mutual funds
Balanced or hybrid mutual funds are a form of fund, where a portion of the corpus is invested in equity and the remainder in debt. A hybrid fund is structured in such a way that the investor gets better returns than just debt funds, but the risk of equity funds is significantly reduced.
Equity oriented hybrid funds
Equity-oriented hybrid funds are a form of hybrid funds that allocate more than 65 percent of their assets to equity. At the same time, the remainder is invested in debt funds and other fixed-income securities.
Debt Oriented Hybrid Funds
Debt -oriented hybrid funds are those that invest 65 percent or more of their assets in fixed-income instruments such as debt funds, debentures, and treasury bills.
Monthly Income Plans
Monthly income plans are a particular form of hybrid investment funds primarily invested in debt securities, which say 80 to 90 percent. The remaining 10-20 percent is in equity.