Overnight Mutual Funds: Definition, Best Funds of India 2025

Debt Funds are ideal if you have low-risk tolerance but expect stable returns. They are ideal for those looking for short—to medium-term investment options, typically ranging from a few months to three years. Due to their liquidity, these funds can also be a good choice for parking emergency funds. Funding managers leverage Debt Funds as part of a diversified portfolio of fixed-income instruments that allow them to evenly spread risk.

List of Notable Distressed Debt Funds

The NAV represents the total value of the fund’s assets minus any liabilities, divided by the number of units outstanding. This metric provides an idea of how much each unit of the fund is worth, helping investors understand what a debt fund investment is and how debt funds work. As interest rates change, the Net Asset Value (NAV) of the fund changes due to price changes of individual bonds in the portfolio. It is difficult to anticipate the NAV of the fund, and it makes bond funds less attractive to investors compared to individual bonds.

Many people hesitate to invest because they fear losing access to their money or taking on unnecessary risk. Meanwhile, savings accounts offer little growth, and inflation quietly chips away at your hard-earned funds. While typically lower than Equity Funds, Debt Funds can still provide substantial returns, especially when interest rates are favorable.

• For instance, Motilal Oswal Asset Allocation Passive Fund of Funds follows a strategic asset allocation and has limited gold exposure to 10% for Aggressive FoF and Conservative FoF.
• Names of specific funds can change frequently, but typically, liquid funds from reputable fund houses with strong performance histories are recommended.
• However, several factors must be considered to make an informed decision.
• Floater funds invest at least 65% of their assets in floating-rate bonds.
• The current economic environment supports private debt, with elevated central bank policy rates and low default rates.

Bond funds can be a good investment for those seeking income and capital preservation. They offer diversification, professional management, and access to a range of bonds. However, their returns might be lower compared to equities, and interest rate changes can affect bond prices. As per the article by Value Research, aggressive hybrid funds are investment options that combine equity and debt components.

• These funds invest a minimum of 65% of total assets in corporate bonds rated AA or below.
• These securities provide regular income in the form of interest payments.
• Let us take an example of the ICICI Prudential Debt Management Fund (FOF).
• The price of the Bond increases because its interest rates go down.
• For medium-term goals, consider short to medium-duration funds, which typically invest in bonds with maturities ranging from one to three years.
• Liquid Debt Funds cater to those prioritising safety and liquidity, aiming for returns marginally higher than savings accounts.

Features of Debt Funds

Investors seeking higher returns without venturing into traditional equity schemes can consider allocating funds to an index fund. Yes, can say that for mutual funds, if the mutual fund category is… However, it is seen that a few FOFs have a higher what is debt fund with example expense ratio than regular schemes because they are responsible for the costs of the underlying schemes in which the FoF has invested.

Who Should Invest in Liquid Funds?

Historically, liquid funds have delivered returns similar to short-term fixed deposits. Matching the investment horizon with the fund’s maturity aligns with risk tolerance and financial goals, ensuring optimal returns and liquidity. Selecting the right Debt Mutual Fund requires careful analysis and alignment with your financial goals and risk tolerance. Here are some key considerations to guide you in making an informed choice. The value of a debt fund’s units is calculated based on the fund’s net asset value (NAV).

Glossary Terms

When it comes to managing your finances and achieving long-term stability, it’s essential to explore the diverse investment options available to you. One such option that can offer stability and consistent returns is a debt fund. In this article, we will delve deep into the world of debt funds, covering everything from their definition and risks to how you can invest and some examples to consider. PPF is a long-term, government-backed savings scheme with a 15-year lock-in period, while liquid funds offer high liquidity and are designed for short-term investments.

FoFs allow you to invest in multiple schemes only by investing in one scheme. It helps you to diversify your investments to various asset classes such as equity, debt, gold, etc. Through this fund, you do not have to manage or diversify your portfolio independently; the fund manager will decide on your behalf and allocate the money accordingly. The Total Expense Ratio (TER) is the annual charge that fund houses charge to manage the investments. SEBI has also segregated the FoFs based on their underlying schemes and has put a cap on the expense ratio that these funds can charge.

Mutual funds invest in different securities, like equity and debt instruments. They invest in a company’s stocks and debt papers on behalf of their investors.The FoF invests in other mutual funds. Here, the fund manager can invest in a single fund or funds of different fund houses depending on the underlying investment strategy. A bond fund is offered as mutual funds by pooling all investors’ funds. Usually, investment is made in established institutions with high credit ratings.

The minimum investment in such instruments should be 80 per cent of total assets. Fund of Funds (FoF) or super fund is a type of mutual fund that offers you the convenience and benefits of investing in multiple funds through a single investment. Fund of funds means a type of mutual fund that invests in other mutual funds. So, instead of directly investing in stocks or other instruments, the fund manager invests in a portfolio of various mutual funds.

In general, special situation funds exist when a company is in financial distress. They focus on companies whose value is greatly impacted by certain market events. Thus, this fund proves beneficial when a firm is on the verge of bankruptcy. As a result, the private debt fund structure may include debt as well as equity financing.