There are many types of debt funds available for investment for investors looking for fixed and stable returns. These funds can be categorised as per their period of maturity or as per their investment philosophy. Let us look at various debt funds available in the market and what these hold in store for the retail investors.
1) Liquid funds: These funds have a maturity period of 91 days or less and offer highest liquidity.
2) Ultra short-term funds: These funds have a maturity period of over 91 days to a year.
3) Short-term funds: The maturity of these funds is usually for more than a year. Some of the short-term funds have been in existence for over a decade now!
4) Income funds: These funds are usually open-ended funds offering regular income to the investors. The maturity of these funds vary widely.
Apart from the maturity-based classification above, there are funds with specific investment objective, such as investing in government securities or funds with fixed maturity.
1) Gilt funds: These funds invest only in government securities, known as bonds, that are issued by the Government of India. These funds are relatively safe investments as the chances of the government defaulting in repayment of the principal amount are negligible.
2) Fixed maturity plans (FMPs): FMPs, as the name suggests, are closed ended funds that have a fixed maturity period of one year to 5 years. The investors usually remain invested till the end of the tenure and thus the liquidity of these funds is low.