What are the different types of debt funds?
A debt mutual fund scheme invests in debt papers like government bonds, fixed deposits, approved private deposits and so on. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. The different types of debt funds are:
They invest their corpus in securities issued by the government. These funds carry zero default risk but are associated with interest rate risk. So, there could be a possibility that the debt funds lose some part of their net asset vale (NAV) also. But these schemes are safer as they invest in papers backed by government.
They invest a major portion in various debt instruments such as bonds, corporate debentures and government securities.
MONTHLY INCOME PLANS (MIP)
They invest most of their corpus in debt instruments and minimum in equities. They get the benefits of both equity and debt market. These schemes ranks slightly high on the risk-return matrix. These try to give you a monthly income in the form of dividends, which is of course not guaranteed. These funds are for investors, who have a big corpus initially, and would like to generate a monthly income for themselves with low to moderate risk.
SHORT TERM PLANS (STPS)
These funds are for those with an investment horizon of three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate.
Also known as money market schemes. These provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs and are meant for an investment horizon of one day to three months.