Debt Fund
A mutual fund investing primarily in bonds, debentures and money-market instruments.
How it is identified
Test: the scheme invests predominantly in fixed-income securities, with returns driven by accrual and by price changes from yield movements
Unit
qualitative
In depth
Debt funds are not fixed deposits: their NAV moves daily with interest rates and with credit events, so a debt fund can and does lose money over short periods. The two risks are duration, which determines sensitivity to rate changes, and credit, which determines exposure to default — SEBI's scheme categorisation defines both for each category. Indian debt funds lost investor money in the 2018-2020 credit events, which is what drove the tightening of liquidity and disclosure rules. Since April 2023 most debt fund gains are taxed at slab rates regardless of holding period, which removed their long-standing tax advantage.
Worked example
A fund with a modified duration of 5 loses about 5% of NAV if yields rise one percentage point. On a 7.2% portfolio yield, that single move erases about eight months of accrual income.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Debt Fund” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.