Debt mutual funds primarily invest in debt instruments like treasury bills, certificate of deposits, government bonds, corporate bonds, money market instruments, etc. These funds can be categorized based on the securities they invest in and the maturity period of the underlying securities.
The following are the different types of debt mutual funds -
Overnight Funds
Investment mandate: Invest in debt securities with a maturity of one day.
Risk: Low risk
Suitability: To park idle cash
Duration: 0 to 7 days
Liquid Funds
Investment mandate: Invest in money market instruments and high-grade debt securities with 91 days maturity period.
Risk: Low risk
Suitability: An alternative to a savings bank account
Duration: 7 days to 3 months
Ultra Short Duration Funds
Investment mandate: Invest in money market instruments or debt securities with Macaulay Duration of the portfolio between 3 to 6 months.
Risk: Low risk
Suitability: To park surplus funds/create an emergency fund
Duration: 3 to 6 months
Low Duration Funds
Investment mandate: Invest in money market instruments or debt securities with Macaulay Duration of the portfolio between 6 to 12 months.
Risk: Low risk
Suitability: To park short-term funds
Duration: 6 to 12 months
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Money Market Funds
Investment mandate: Invest in money market instruments with a maturity period of upto one year
Risk: Low risk
Suitability: An alternative to fixed deposit
Duration: up to 1 year
Short Duration Funds
Investment mandate: Invest in money market instruments or debt securities with Macaulay Duration of the portfolio is between 1 to 3 years
Risk: Low risk
Suitability: To plan for short-term goals
Duration: 1 to 3 years
Medium Duration Funds
Investment mandate: Invest in money market instruments or debt securities with Macaulay Duration of the portfolio is between 3 to 4 years.
Risk: Low risk
Suitability: To plan for medium-term goals
Duration: 3 to 4 years
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Medium to Long Duration Funds
Investment mandate: Invest in money market instruments or debt securities with Macaulay Duration of the portfolio is between 4 to 7 years.
Risk: Moderate risk
Suitability: To plan for medium-term goals
Duration: 4 to 7 years
Long Duration Funds
Investment mandate: Invest in money market instruments or debt securities with Macaulay Duration of the portfolio of more than 7 years.
Risk: Moderate risk
Suitability: To plan for long-term goals
Duration: More than 7 years
Dynamic Bond Funds
Investment mandate: Invest in debt securities with varying maturities based on interest rate scenarios.
Risk: Moderate risk
Suitability: Investors finding it difficult to understand interest movement
Duration: 3 to 5 years
Corporate Bond Funds
Investment mandate: Invest a minimum of 80% of portfolio assets in high-rated corporate bonds (rated AA+ or higher)
Risk: Low risk
Suitability: Looking for regular income and capital protection
Duration: 3 to 5 years
Credit Risk Funds
Investment mandate: Invest a minimum of 65% of portfolio assets in corporate bonds (rated AA or below)
Risk: Low risk
Suitability: Investors willing to take higher default risk
Duration: 3 to 5 years
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Banking and PSU Funds
Investment mandate: Invest a minimum of 80% of portfolio assets in debt securities issued by banks, PSUs and public financial institutions.
Risk: Moderate risk
Suitability: Investors seeking to balance yield, safety and liquidity
Duration: 1 to 3 years
Gilt Funds
Investment mandate: Invest a minimum of 80% of portfolio assets in government securities with varying maturities (medium to long term)
Risk: No risk
Suitability: Investors seeking a safer investment option
Duration: 3 to 20 years
Floater Funds
Investment mandate: Invest a minimum of 65% of portfolio assets in floating rate instruments
Risk: Moderate risk
Suitability: Investors willing to take advantage of interest rate movements
Duration: 3 to 5 years
Fixed Maturity Plans
Investment mandate: Passively managed closed-ended fund where securities are held till maturity.
Risk: Low risk
Suitability: Alternative to fixed deposit investment for a fixed duration
Duration: Varies depending on each FMP
Read more about ICICI Prudential Mutual Funds
