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Debt Schemes
Debt Schemes
Debt Schemes in mutual funds are investment funds that primarily invest in fixed-income securities such as bonds, debentures, government securities, and other money market instruments. These schemes are designed to provide regular income and capital preservation with lower risk compared to equity schemes. Debt schemes are suitable for conservative investors or those looking for a stable income with relatively lower volatility.
Key Features of Debt Schemes
Capital Preservation: Debt funds are generally less volatile than equity funds and are focused on preserving capital while generating steady income.
Lower Risk: Debt schemes carry lower market risk compared to equity schemes, though they are still subject to interest rate risk and credit risk.
Income Generation: These funds are designed to provide regular income through interest payments from the debt securities they hold.
Type of Debt Schemes
Liquid Funds:
Invest in short-term money market instruments with maturities of up to 91 days. They are highly liquid and are suitable for parking surplus funds for short durations.
Ultra Short Duration Funds:
Invest in debt instruments with a duration of 3 to 6 months. These funds offer slightly higher returns than liquid funds with minimal interest rate risk.
Short Duration Funds:
Invest in debt instruments with a duration of 1 to 3 years. They are ideal for investors with a short- to medium-term investment horizon.
Medium Duration Funds:
Invest in securities with a duration of 3 to 4 years. These funds aim to generate higher returns by taking on slightly more interest rate risk.
Long Duration Funds:
Invest in debt instruments with a duration of over 7 years. These funds are more sensitive to interest rate changes and can offer higher returns, but they also carry higher risk.
Corporate Bond Funds:
Invest at least 80% of their assets in high-quality corporate bonds (rated AA and above). They offer higher returns than government securities with moderate risk.
Credit Risk Funds:
Invest in lower-rated corporate bonds (below AA) with the aim of generating higher yields. These funds carry higher credit risk and are suitable for investors with a higher risk appetite.
Gilt Funds:
Invest exclusively in government securities, which are considered safe as they are backed by the government. These funds are ideal for risk-averse investors seeking stable returns.
Dynamic Bond Funds:
Actively manage their portfolios by changing the duration of investments based on interest rate movements. These funds are suitable for investors looking for flexibility in changing market conditions.
Fixed Maturity Plans (FMPs):
Closed-end funds that invest in fixed-income securities and have a defined maturity period. FMPs are suitable for investors who can lock in their money for a specific period.
Money Market Funds:
Invest in highly liquid instruments with short maturities, typically less than a year. These funds offer low-risk, short-term investment options with moderate returns.