Home Discover Journals What is a debt mutual fund?

What is a debt mutual fund?

By Finserv MARKETS - Aug 2,2019
Views Icon893 Views 0 0 Comments

What is a debt mutual fund

Mutual funds investment is one of the most popular forms of investments in India that offers good returns with marginal risks. According to the Association of Mutual Funds in India (AMFI), assets under management (AUM) of the Indian mutual fund industry crossed the landmark level of Rs.25 lakh crore in April 2019. Presently, the total number of accounts or folios that the industry is handling is 8.27 crore. The Indian mutual fund industry has seen a phenomenal four-fold increase in the last 10 years.

Though mutual funds investment is a simple process, the sheer number and types of mutual funds can confuse first-time investors. Therefore, to help new investors, Finserv MARKETS regularly publishes informative articles to educate people on the various aspects of mutual fund investment. Today, we will discuss one special asset class of mutual fund called debt mutual fund – what it is and how it works.

What is a debt mutual fund?

When an asset management company (AMC) (the company that issues mutual funds) invest your money in a debt instrument such as government securities, corporate bonds, treasury bills, commercial paper and other money market instruments, the mutual funds that are issued against these investments are called debt mutual funds.

The AMC is simply giving a loan to the issuing authority by buying a debt instrument. Debt funds provide fixed interest income on maturity and both the interest rate and maturity date is fixed by the issuer.

How is a debt fund operated?

A fund manager is responsible for selecting the debt instruments where the fund is invested. Debt instruments are selected on the basis of credit ratings and securities with high credit ratings are given preference. If an issuer of a debt instrument has good credit ratings, it means that they are well-positioned to provide the returns as promised.

Fund managers of debt fund ensure that they invest in securities with good ratings to reduce volatility. The country’s interest regime and the fund manager’s investment strategy will also impact maturity.

Before you settle down on the right debt mutual fund to invest, you must do some research. However, you don’t have to worry about research nor learning from the school of hard knocks with Finserv MARKETS. You can invest in top-rated mutual funds as per Morningstar rankings and see your wealth grow.

Should you invest in debt funds?

Debt funds are a safer investment avenue for those who are averse to market risks. Though there is no guarantee of fixed returns, you get decent returns that are almost predictable. Whether your investment horizon is short-term (3-12 months) or medium-term (3-5 years) debt funds are suitable for both scenarios.

What are the various types of debt mutual funds?

As mentioned earlier, classes, sub-classes and numerous types of mutual funds can really confuse first-time investors. However, it’s not that complicated if you spend some time to study. Debt mutual funds also have sub-categories or classes distinguished by the maturity period of these funds:

  • Income funds

  • Liquid funds

  • Dynamic bond funds

  • Short-term and ultra-short-term debt funds

  • Gilt funds

  • Credit opportunities funds

  • Fixed maturity plans

Which are the top debt mutual funds in India?

When it comes to debt mutual funds there are no sizes that fits all. Your risk appetite, financial objectives, investment horizon and investment amount will decide the right type or class of debt mutual fund for you.

The top debt mutual funds in India listed below are top rated mutual funds based on Morning star rankings.


Time Period

Fund Name


Corporate Bond

1 Year

Axis Corporate Debt Fund Direct Regular Dividend Payout


10-Yr Govt. Bond

3 Year

IDFC Government Securities Fund – Constant Maturity Plan Direct Plan Periodic Dividend Payout


Credit Risk

5 Year

Franklin India Credit Risk Fund – Direct – Growth


Dynamic Bond

3 Year

ICICI Prudential All Seasons Bond Fund Direct Plan Bonus


Money Market

6 months

Tata Money Market Fund Direct Plan Daily Dividend Reinvestment


How to invest in debt funds?

Finserv MARKETS, you don’t have to visit a branch for mutual funds investment. There are no long queues, paperwork or traffic jams to deal with; just a few clicks are enough. To apply for a debt mutual fund at Finserv MARKETS, you can choose a fund and enter your investment amount, complete your KYC and make the payment – and it’s all done in a few minutes.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!


Connect with Us
Connect with Us

Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522