Lesser know category of mutual funds - Debt Funds ( also known as Fixed Income Mutual Funds) offers several advantages over traditional fixed income instruments ( Like FDs, Post Office Deposits) besides adding balance and stability to your portfolio.
Debt mutual funds are the funds that invest in a mix of debt instruments or fixed income securities which include government securities, corporate bonds, treasury bills, Certificate of Deposits (CDs), Commercial Papers (CPs), bonds and money market instruments.
These are called debt instruments because the issuers have borrowed money from the lender (investors) by issuing these instruments. These "debts", are income generating instruments. This income could be monthly, semi-annually, annually or at maturity. However, most of the debt instruments are unavailable directly to the retail investors. But, they can invest in those debt instruments indirectly through Debt Mutual Funds.
The returns of a debt mutual fund comprises of :
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