Debt Scheme

Debt Mutual Fund

 Debt is the major markets in which people invest their hard-earned money to make profits.
 Buying and selling of loans in exchange for interest. 
 Considered to be less risky than equity investments.
  Debt investments offer lower returns as compared to equity
investments.
What is Debt Fund ?
 Debt funds invest in securities which generate fixed income like treasury bills, corporate bonds,
commercial papers, government securities.
  All these instruments have a pre-decided maturity date and interest rate. 
  That the buyer can earn on maturity – hence the name fixed-income securities.
 The returns are usually not affected by fluctuations in the market. 
How do Debt Funds work?
 Every debt security has a credit rating. 
 The possibility of default by the debt issuer in disbursing the principal and interest.
 Debt fund managers use these ratings to select high-quality debt instruments. 
 A higher rating implies that the issuer is less likely to default.
Do Debt Funds also invest in low-quality debt instruments?
 Fund managers select securities based on various factors.
 Sometimes, choosing low-quality debt security offers an opportunity to earn higher returns on
debt investments and the fund manager takes a calculated risk.
Who should invest in Debt Mutual Funds?
 Debt funds are highly recommended to investors with lower risk tolerance. 
  Debt funds usually diversify across various securities to ensure stable returns.
 the returns are usually in an expected range. 
Short Term Investors (3-12 Months)
 Rather than keeping your funds in a regular savings account, you can invest in liquid funds which
offer 7-9% returns. Also, you do not compromise on liquidity.
Medium Term Investors ( 3-5 Years)
 low-risk instrument for 3-5 years, the first thing that probably comes to mind is a bank fixed deposit.
  Investing in a dynamic bond fund for a similar tenure tend to offer better returns than FDs.
Types of Debt Fund
Based on the maturity period, debt funds can be classified into the following types:
 Liquid Fund – which invests in money market instruments having a maturity of maximum 91 days.
Liquid funds tend to offer better returns than savings accounts and are a good alternative for short-
term investments.
 Money Market Fund – which invests in money market instruments with a maximum maturity of 1
year. These funds are good for investors seeking low-risk debt securities for a short-term.
 Dynamic Bond Fund – which invests in debt instruments of varying maturities based on the interest
rate regime. These funds are good for investors with moderate risk tolerance and an investment
horizon of 3 to 5 years.
 Low Duration Fund – which invests in money market instruments and debt securities in a manner
that the Macaulay duration of the scheme is between six and twelve months.
 Corporate Bond Fund – which invests a minimum of 80% of its total assets in corporate bonds
having the highest ratings. These funds are good for investors with lower risk tolerance and
seeking to invest in high-quality corporate bonds.
 Banking and PSU Fund – which invests at least 80& of its total assets in debt securities of PSUs
(public sector undertakings) and banks.
 Gilt Fund – which invests a minimum of 80% of its investible corpus in government securities
across varying maturities. These funds do not carry any credit risk. However, the interest rate
risk is high. 
 Credit Risk Fund – which invests a minimum of 65% of its investible corpus in corporate bonds
having ratings below the highest quality corporate bonds. Therefore, these funds carry an
amount of credit risk and offer slightly better returns than the highest quality bonds.
 Overnight Fund – which invests in debt securities having a maturity of 1 day. These funds are
considered to be extremely safe since both credit risk and interest rate risk is negligible.
 Ultra-Short Duration Fund – which invests in money market instruments and debt securities in a
manner that the Macaulay duration of the scheme is between three and six months.
 Short Duration Fund – which invests in money market instruments and debt securities in a
manner that the Macaulay duration of the scheme is between one and three years.
 Medium Duration Fund – which invests in money market instruments and debt securities in a
manner that the Macaulay duration of the scheme is between three and four years.
 Medium to Long Duration Fund – which invests in money market instruments and debt securities in a
manner that the Macaulay duration of the scheme is between four and seven years.
 Long Duration Fund – which invests in money market instruments and debt securities in a manner that
the Macaulay duration of the scheme is more than seven years.

Risks in Debt Funds

1.Credit Risk – which is the default risk of the issuer not repaying the principal and interest.
2.Interest Rate Risk – which is the effect of changing interest rates on the value of the scheme’s securities. 
3.Liquidity Risk – which is the risk carried by the fund house of not having adequate liquidity to meet
redemption requests.

Returns
 Debt funds offer lower returns as compared to equity funds.
 Also, there is no guarantee of the returns.
 the NAV of debt funds fluctuates with changes in the interest rate. 

Expense Ratio
 This is an important aspect while investing in debt funds.
  The expense ratio is a percentage of the fund’s total assets which a fee towards fund management
services.
 a high expense ratio can dent your earnings.
Different Companies offering Debt Mutual Scheme in India
This information is taken by Groww.in
Fund Name Category Risk 1y Return Rating Fund Size in
(cr)

HDFC Dynamic Debt Moderate 4.5% 5 Rs.526

Debt Fund

Axis Corporate Debt Moderate 5.0% 5 Rs.3,580

Debt Fund

ICIC Prudential Debt Low to 6.9% 5 Rs.2,601

Gilt Fund Moderate

Bank of India Debt Moderate 28.0% 5 Rs.77

Short Tem Income
Fund

Aditya Birla Sun Debt Low to 5.4% 5 Rs.13,015

Life Floating Rate Modearte
Direct Fund
Hybrid Scheme

Hybrid Mutual Funds

 Investments can be broadly classified into three types based on risk – equity (or high-risk)
investments, debt (or low-risk) investments, and hybrid investments. 
 Plan based on their financial goals, risk tolerance, and investment horizon. 
 And hence it is difficult to classify an investor as a purely high-risk or low-risk-taker.
What are Hybrid Mutual Funds?
 Hybrid funds are a combination of equity and debt investments which are designed to meet the
investment objective of the scheme.
 Each hybrid fund has a different combination of equity and debt targeted at different types of
investors.
How does a Hybrid Fund work?
 A hybrid fund endeavors to create a balanced portfolio to offer regular income
to its investors along with capital appreciation in the long-term.
 The fund manager creates a portfolio according to the investment objective of
the scheme and allocates the funds in equity and debt instruments in varying
proportions. 
 also buys or sells assets if the market movements are favorable.
Who should invest in a Hybrid Mutual Fund?
 Hybrid funds are considered to be riskier than debt funds but safer than equity
funds They tend to offer better returns than debt funds and are preferred by
many low-risk investors.
  new investors who are unsure about stepping into the equity markets tend to
turn towards hybrid funds.
 Hybrid funds allow investors to make the most out of equity investments while
cushioning themselves against extreme volatility in the market.
 Types of Hybrid Funds
 Since every hybrid fund can have a different asset allocation between equity and debt, they can be classified
into the following types:
Equity-oriented Hybrid Funds
 An equity-oriented hybrid fund invests at least 65% of its total assets in equity and equity-related instruments
of companies across various market capitalizations and sectors.
 The remaining 35% is invested in debt securities and money market instruments.
Debt-oriented Hybrid Funds
 A debt-oriented hybrid fund invests at least 60% of its total assets in fixed-income securities like bonds,
debentures, government securities, etc.
 The remaining 40% is invested in equity. Some funds also invest a small part of their corpus in liquid
schemes.
Balanced Funds
 These funds invest a minimum of 65% of their total assets in equity and equity-related instruments
and the rest in debt securities and cash. 
 They are considered to be equity funds and offer tax exemption on long-term capital gains of up to Rs. 1 lakh.
 The fixed income component makes it a good option for equity investors as it helps mitigate the
volatility of equity investments.
Monthly Income Plans
 Monthly Income Plans are hybrid funds which primarily invest in fixed income securities and
allocate a small portion of their corpus to equity and equity-related instruments.
  This allows these plans to generate better returns than pure debt schemes and allows the fund
to offer regular income to investors. 
 Most plans also offer a growth option where the income grows in the fund’s corpus.
Arbitrage Funds
 Arbitrage funds buy stocks at a lower price in one market and sell it at a higher price in another.
  The fund manager constantly keeps looking for arbitrage opportunities and maximize the
fund’s returns.
 During such times, the fund invests primarily in debt securities and cash. 
 Arbitrage funds are considered to be as safe as debt funds. However, long-term capital gains are
taxed like equity funds.
Factors to consider before investing in Hybrid Mutual Funds in
India
The Risk-Return Assessment
 Hybrid funds carry an investment risk proportionate to the allocation of assets in
its portfolio.
 Hence, it is important to analyze the portfolio of the scheme carefully to get a
good understanding of the risks involved.
 For example, if you are investing in an equity-oriented hybrid fund, then you
must look at the kind of stocks the fund owns. Are the majorly large-caps or
small/mid-caps? This helps you understand the risks better. Further, it will also
give you an idea of the kind of returns that you can expect.
Choose the right Hybrid Fund
 Since hybrid funds come in different types, it is important to consider your risk
tolerance, financial goals, and investment horizon before choosing a scheme.
 If you need regular income, then opting for a debt-oriented hybrid fund might
offer better returns than a pure debt fund due to the added equity component.
Ensure that you consider these factors before investing.
Different Companies offering Hybrid Mutual Scheme in India

This information is taken by Groww.in

Fund Name Category Risk TY Returns Rating Fund Size

(in cr)

Kotak Debt Hybrid Hybrid Moderately 5.9% 5 Rs.1,637

Fund High

Quant Multi Assets Hybrid Very High 6.2% 5 Rs.530

Fund

Quant Absolute Hybrid Very High 6.1% 5 Rs.950

Fund

ICICI Prudential Hybrid Moderately 5.2% 5 Rs.3,291

Regular Saving High
Fund
Tata Arbitrage Hybrid Low 5.2% 5 Rs.5,630
Fund