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What Are The Types Of Mutual Funds? 7 Types Of Debt Funds Explained!

By Author: swarali chavan
Total Articles: 27

The SEBI managed mutual funds are where a bunch of investors pool in the capital that eventually gets invested in asset classes like bonds, shares, and other money market instruments. There is a mutual fund investment for every kind of investor. Some of the common ones are:

1) Equity funds: They primarily focus on equities like stocks or shares. Equity funds are considered high-risk funds since they deliver greater returns. Short-term goal investors can opt for such funds
2) Debt funds: Such funds focus on debt instruments like Government bonds, company debentures, and fixed income assets. Debt funds provide fixed returns and are ideal for low-risk investors. These funds are further classified as liquid funds, gilt funds, etc.
3) Hybrid funds: They look to maintain a diverse portfolio. Here the proportion between debt and equity can vary. So, the returns and risk strike a perfect balance

This article focuses more on different types of debt mutual funds as they are relatively a safe investment instrument for risk averse people:

1) Liquid funds: It is an open-ended scheme that invests in both debt and money market securities. Liquid funds come with a maturity period of 91 days. Those who want quick returns with the least amount of risk should opt for liquid funds. In fact, these funds give higher returns than a savings account but follow a similar concept of fixed deposits.

2) Gilt funds: what are gilt funds? They are funds which invest at least 80 per cent of their assets in Government securities across maturities. It carries no credit risk. However, they carry a high amount of interest risk.

3) Overnight funds: These are open-ended debt funds that invest in overnight securities with a maturity of one day. It carries minimal interest rate fluctuation and credit default risk.

4) Money market funds: Such funds invest in money market instruments that carry a maturity period of one year. Money market funds offer relatively low-risk and high liquidity.

5) Short duration fund: The assets belong to debt and money market instruments with Macaulay Duration between 1 to 3 years. Since the maturity period is less, short duration funds offer lower returns and carry low-risk levels.

6) Medium duration fund: The Macaulay Duration of such funds is between 3 to 4 years. They primarily invest in debt and money market instruments.

7) Long duration fund: The Macaulay Duration for such funds is over 7 years, and their assets are towards debt as well as other money market instruments.

Be it liquid funds or gilt funds; before choosing a debt fund scheme, it is imperative to understand your financial needs and goals.

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