A mutual fund that invests in fixed-income securities like government bonds, corporate bonds, and money market instruments.
Debt funds allocate their corpus primarily to fixed-income instruments — government securities (G-Secs), corporate bonds, treasury bills, commercial paper, and certificates of deposit. They offer more predictable, lower-volatility returns than equity funds, though they carry interest rate risk and credit risk.
A debt fund lends money to governments and corporations by buying their bonds, earns interest, and passes returns to investors. Safer than equity, but with lower long-term growth. Your money earns interest income instead of benefiting from business growth.
The fund purchases bonds and money market instruments — G-Secs, T-Bills, corporate bonds, CPs, CDs.
Interest income accrues daily and reflects in rising NAV.
Bond prices move inversely to interest rates: when rates rise, bond prices (and NAV) fall, and vice versa.
Subtypes include: liquid funds (≤91 days), overnight funds, short duration, gilt funds, and credit risk funds.