Debt mutual funds are those that invest in fixed income instruments – such as corporate and government bonds, overnight securities, corporate debt securities, money market instruments etc. These funds are ideal for investors who are averse to risk and seek to generate regular income.
Debt funds are a good tool to use if you want steady income with low volatility and higher than bank returns. They also come with greater tax-efficiency than these products. We’ll address the advantages of debt funds and compare them with similar products in another article.
Let’s look at how SEBI has categorized debt funds.