Debt Mutual Funds

A debt fund is a type of mutual fund scheme. The fund allocates investments in fixed market instruments like government securities, corporate bonds, debentures, commercial papers, treasury bills, certificates of deposits and other money-market instruments.

Since these fixed-income securities have lower risks when compared to stocks, the overall risk levels of debt funds are significantly lower than that of equity-oriented mutual funds. Hence, debt funds are ideal for investors who wish to invest in mutual funds but don’t want the high market risks associated with equities.

One common question investors have, "why is this fund called debt?" It's because issuers of debt instruments like government securities, corporate bonds and others borrow money from lenders against these instruments. Debt instruments come with varying maturity periods and can either generate income at regular intervals or on maturity.

Debt instruments generally require higher investment capital, making it out of reach of retail investors. As a result, debt mutual funds are the ideal option for individual investors who are looking to add debt instruments to their portfolio. You can add debt instruments to your investment portfolio, even with small amounts.