02 — Preservation
Debt Funds
Purchasing power, protected across cycles.
Debt mutual funds engineered to defend capital, generate stable accrual, and provide liquidity — the ballast that lets equity portfolios stay invested.
Debt funds invest in a curated ladder of government securities, corporate bonds, PSU paper, and money-market instruments. They price risk in basis points, not moods.
Fig. 02 — Debt Funds
Preservation
Horizon
1 – 5 years
Risk
Low – Moderate
Liquidity
T+1 to T+2
Ticket size
₹5,000+
I — What are Debt Funds
A debt fund (also known as income fund) is a fund that invests primarily in bonds or other debt securities. Debt funds invest in short and long-term securities issued by government, public financial institutions, companies
- Treasury bills, Government Securities, Debentures, Commercial paper, Certificates of Deposit and others
- Short-term funds, Medium-term funds, Long-term funds
- Gilt fund, Treasury fund, Corporate bond fund, Infrastructure debt fund
- Floating rate funds, Dynamic Bond funds, Fixed Maturity Plans
How it works
A four-step process
01
Map liabilities
We align debt allocation to your near-term goals — tax outflows, school fees, capex, or bridge funding.
02
Choose duration
Liquid, ultra-short, short, corporate bond, or dynamic — matched to horizon and rate view.
03
Diversify credit
Only AAA/AA+ mandates for core; opportunistic sleeves reviewed manager-by-manager.
04
Rebalance
Regular top-ups from equity gains keep the debt sleeve at target weight.
Chapter — Fit
Who this is for.
Debt Funds is not for every investor — and that is the point. We choose it deliberately, when the mandate calls for it.
01
Emergency corpus and near-term goals
02
Retirees drawing regular income
03
Business owners parking surplus working capital
04
Balanced portfolios needing ballast
Why it works
Structural advantages
01 / 04
Stability
Volatility a fraction of equity, with returns typically above savings and FDs.
02 / 04
Liquidity
Most schemes redeem in one to two working days without exit loads.
03 / 04
Diversification
One fund often holds 40–80 issuers across sectors and maturities.
04 / 04
Tax efficiency
Structured to your slab and holding period for optimal after-tax yield.
Reference — SEBI Categories
Regulatory framework
Debt funds classified by portfolio duration and issuer profile under SEBI’s scheme categorization framework.
01
Overnight Fund
Overnight securities with maturity of 1 day.
02
Liquid Fund
Debt and money market securities with maturity of upto 91 days only
03
Ultra Short Duration Fund
Debt & Money Market instruments with Macaulay duration of the portfolio between 3 months – 6 months
04
Low Duration Fund
Investment in Debt & Money Market instruments with Macaulay duration portfolio between 6 months- 12 months
05
Money Market Fund
Investment in Money Market instruments having maturity upto 1 Year
06
Short Duration Fund
Investment in Debt & Money Market instruments with Macaulay duration of the portfolio between 1 year – 3 years
07
Medium Duration Fund
Investment in Debt & Money Market instruments with Macaulay duration of portfolio between 3 years – 4 years
08
Medium to Long Duration Fund
Investment in Debt & Money Market instruments with Macaulay duration of the portfolio between 4 – 7 years
09
Long Duration Fund
Investment in Debt & Money Market Instruments with Macaulay duration of the portfolio greater than 7 years
10
Dynamic Bond Fund
Investment across duration
11
Corporate Bond Fund
Minimum 80% investment in corporate bonds only in AA+ and above rated corporate bonds
12
Credit Risk Fund
Minimum 65% investment in corporate bonds, only in AA and below rated corporate bonds
13
Banking & PSU Fund
Minimum 80% in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds
14
Gilt Fund
Minimum 80% in G-secs, across maturity
14
Gilt Fund with 10 year constant Duration
Minimum 80% in G-secs, such that the Macaulay duration of the portfolio is equal to 10 years
15
Floater Fund
Minimum 65% in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/ derivatives)
01
Debt funds invest across government securities, corporate bonds, T-bills, commercial paper, and certificates of deposit.
02
Structures like Fixed Maturity Plans (FMPs) and Infrastructure Debt Funds sit alongside these open-ended categories.
Considerations
What we tell you before you commit.
01
Credit risk in lower-rated paper — screened out of core allocations.
02
Duration risk when rates rise unexpectedly.
03
Reinvestment risk in falling-rate environments.
Frequently asked
Answered plainly
Are debt funds safer than FDs?
Different, not safer. Debt funds offer liquidity and diversification; FDs offer principal certainty. We use both, deliberately.
How are gains taxed?
Post-2023, gains on most debt funds are taxed at slab rate irrespective of holding period. Structure matters — we optimise accordingly.
What is duration?
Sensitivity of a fund’s NAV to interest-rate moves. Shorter duration = less rate risk = smoother ride.
Ready to explore this route for your portfolio?
A private, no-obligation conversation with one of our experts — begin with your mandate, not a product.