Debt Funds on WebNotes

Corporate bond mutual fund

Tue, 12 May 2026 00:00:00 +0000

A corporate bond mutual fund in India is an open-ended debt scheme that must invest a minimum of 80% of its total assets in the highest-rated corporate bonds – specifically AA+ and above rated corporate debt instruments – under SEBI ’s October 2017 scheme categorisation circular. This mandatory quality screen restricts corporate bond funds to investment-grade, near-sovereign-quality corporate paper, limiting credit risk while exposing investors to the yield spread that high-rated corporations offer above government securities.

Credit quality bucketisation in debt mutual funds

Tue, 12 May 2026 00:00:00 +0000

Credit quality bucketisation in a debt mutual fund refers to the percentage distribution of the portfolio across credit rating categories, from the highest quality (AAA-rated government securities and top-rated corporate bonds) down to below-investment-grade (BB and lower) instruments. It is a mandatory disclosure in Indian debt fund factsheets and is the primary tool for assessing default risk and potential for credit-driven NAV shocks.

Credit quality sits alongside Macaulay duration , modified duration , and yield to maturity (YTM) as the four key risk metrics for Indian debt funds.

Credit risk mutual fund

Tue, 12 May 2026 00:00:00 +0000

A credit risk mutual fund in India is an open-ended debt scheme that must invest a minimum of 65% of its total assets in below-AA-rated corporate bonds (specifically AA-rated and below, including A, BBB, and sub-investment-grade instruments), under SEBI ’s October 2017 scheme categorisation circular. These funds aim to generate higher yields than investment-grade debt funds by taking on credit risk – the risk that the issuing company may default on interest payments or principal repayment. Credit risk funds are the highest-risk category within the debt mutual fund universe and have faced significant investor confidence issues following a series of credit events in 2019 to 2020.

Dynamic bond mutual fund

Tue, 12 May 2026 00:00:00 +0000

A dynamic bond mutual fund in India is an open-ended debt scheme that may invest across any duration (from short-term money-market instruments to 30+ year government bonds) and across any credit quality (from AAA government securities to lower-rated corporate bonds), with the fund manager actively adjusting the portfolio composition based on the prevailing interest rate environment, yield curve shape, and credit outlook. SEBI ’s October 2017 scheme categorisation circular placed dynamic bond funds in the debt category with no mandatory duration or credit quality constraints, giving fund managers maximum flexibility.

Gilt mutual fund

Tue, 12 May 2026 00:00:00 +0000

A gilt mutual fund in India is an open-ended debt scheme that invests a minimum of 80% of its total assets in government securities (G-Secs) across maturities, under SEBI ’s October 2017 scheme categorisation circular. The term “gilt” is borrowed from the British market, where government bonds were historically printed on gilt-edged paper. In India, gilt funds hold predominantly Central Government Securities (CG-Secs) and, to a lesser extent, State Development Loans (SDLs). Gilt funds carry zero credit risk (sovereign backing) but carry high interest rate risk due to the long average maturity of government securities portfolios.

Liquid mutual fund

Tue, 12 May 2026 00:00:00 +0000

A liquid mutual fund in India is an open-ended debt scheme that invests exclusively in debt and money-market instruments with a residual maturity of up to 91 days. Under SEBI ’s October 2017 scheme categorisation circular, the liquid fund category is defined by this 91-day maximum maturity constraint, which limits the interest-rate risk and credit-duration risk of the portfolio while preserving daily net asset value (NAV) liquidity for investors. Liquid funds are among the most widely used short-term parking instruments in India, employed by retail investors for emergency funds, by corporates for treasury management, and by high-net-worth individuals as an alternative to savings bank accounts for idle cash.

Macaulay duration in debt mutual funds

Tue, 12 May 2026 00:00:00 +0000

Macaulay duration is the weighted average time until a bond’s cash flows (coupon payments and principal repayment) are received, where each cash flow is weighted by its present value as a proportion of the bond’s total present value. The concept was introduced by Frederick Macaulay in 1938. Measured in years, it is the foundational duration measure in fixed-income analysis and the metric used by SEBI to define the investment mandate of Indian debt mutual fund categories.

Modified duration in debt mutual funds

Tue, 12 May 2026 00:00:00 +0000

Modified duration is a measure of the price sensitivity of a fixed-income instrument (or a debt mutual fund’s portfolio) to a change in interest rates (yield). It quantifies the approximate percentage change in bond price (or fund NAV) for a 1 percentage point (100 basis points) parallel shift in the yield curve. Modified duration is the primary interest rate risk metric disclosed in Indian debt mutual fund factsheets.

A debt fund with a modified duration of 5 years will see its NAV fall by approximately 5 per cent if yields rise by 1 percentage point, and rise by approximately 5 per cent if yields fall by 1 percentage point. This makes modified duration the single most important number for assessing interest rate risk in a debt fund.

Overnight mutual fund

Tue, 12 May 2026 00:00:00 +0000

An overnight mutual fund in India is an open-ended debt scheme that invests exclusively in debt and money-market instruments with a maturity of exactly one business day (overnight), under SEBI ’s October 2017 scheme categorisation circular. The fund’s entire portfolio is redeployed each business day into new overnight instruments, ensuring that at no point does the fund carry any instrument with a maturity beyond the next business day. This structure makes overnight funds the safest category within the Indian mutual fund universe: they carry effectively zero interest-rate duration risk and near-zero credit risk.

Short-duration mutual fund

Tue, 12 May 2026 00:00:00 +0000

A short-duration mutual fund in India is an open-ended debt scheme that must maintain a portfolio Macaulay duration of 1 to 3 years, under SEBI ’s October 2017 scheme categorisation circular. The Macaulay duration is a measure of the weighted average time to receive a bond’s cash flows, and serves as a proxy for interest rate sensitivity. A portfolio with Macaulay duration of 1 to 3 years is moderately sensitive to interest rate changes – more sensitive than ultra-short duration or money-market funds but significantly less sensitive than medium-duration , medium-to-long-duration , or long-duration funds .

Ultra-short-duration mutual fund

Tue, 12 May 2026 00:00:00 +0000

An ultra-short-duration mutual fund in India is an open-ended debt scheme that must maintain a portfolio Macaulay duration of 3 to 6 months, under SEBI ’s October 2017 scheme categorisation circular. This duration band places ultra-short funds between the near-zero duration of liquid funds and overnight funds on one side, and the 6-12 month duration of low-duration funds on the other. Ultra-short funds are commonly used as a higher-return alternative to liquid funds for investors with slightly longer holding horizons (1 to 6 months) who can tolerate marginally more interest rate and credit risk.

Yield to maturity for debt mutual funds

Tue, 12 May 2026 00:00:00 +0000

Yield to maturity (YTM) of a debt mutual fund is the weighted average internal rate of return (IRR) of all the bonds held in the portfolio, assuming each bond is held until maturity, all coupon payments are received on schedule, and all principal amounts are repaid in full. It represents the pre-expense annual return the portfolio is expected to generate, expressed as a percentage per annum. YTM is a forward-looking expected return estimate, not a historical return.