1. Liquid Funds1
Liquid funds invest in different types of securities like municipal bonds, corporate bonds and government securities. These types of debt instruments are considered risk-free investments because they are backed by government authorities or well-established companies like banks or financial institutions. Liquid funds invest in these securities by getting them through primary market transactions through public sales or secondary market transactions through private placements.
The main difference between liquid funds and other debt funds is that they are not restricted to one type of debt or another. They can also invest in both fixed-income investments as well as equities. Liquid funds have lower risk than other debt funds because they tend to hold liquid assets such as short-term government securities.
2. Short & Ultra-short-term Funds2
Short & Ultra-short-term Funds
Short & ultra-short-term debt funds are debt funds that seek to provide a return over a short period of time. These are the two most popular types of debt funds, and they have different objectives.
Short-term debt funds aim to buy low and sell high, while ultra-short-term debt funds aim to sell their investments as soon as possible in order to minimise risks and maximise profits. Short-term debt funds can be used for short-term purposes and other financial goals.
Ultra-short-term debt funds also offer higher returns than traditional short-term investment funds. While there is no guarantee that investors will profit from investing in ultra-short-term debt funds, they have some advantages over traditional short-term investment funds due to their ability to generate profits more rapidly than conventional investments.
3. Money Market Funds3
Money Market Funds
Money market debt funds, or money market funds as they are also known, offer investors access to short-term debt instruments. These investment products have a very low-interest rate, typically below 4% per annum.
The main benefit of investing in a money market fund is its low fees and charges. This makes them suitable for individuals who want to invest their savings and are not interested in the long-term benefits of an equity investment.
Investors can buy units through an online broker or a stockbroker, who then holds the assets on their behalf until maturity. The unit's value will increase with the economy's growth and the issuer's performance.
4. Dynamic Bond Funds4
Dynamic Bond Funds
As the name suggests, dynamic bond funds are the funds in which your fund manager keeps changing your portfolio based on the fluctuating interest rate. Dynamic bond funds can have different maturity periods because they usually invest in instruments of both longer and shorter maturity periods.
5. Corporate Bond Funds5
Corporate Bond Funds
Corporate bond funds are one of the most popular investment options for investors who want to gain exposure to bonds. Corporate bond funds invest in bonds issued by companies with stable valuations and strong credit profiles. These funds allow you to invest in high-quality corporate bonds, providing better returns than stocks.
Corporate bonds, or fixed-income securities, are debt instruments that provide investors with a regular cash flow and are backed by the company issuing them. They can be highly liquid and offer a low risk of default like short-term paper. The interest rates on corporate bonds tend to be lower than those on other types of assets such as bank deposits or money market funds.
Corporate bond funds typically invest in a diversified portfolio of high-quality corporate bonds from different issuers. They will typically have an average duration of three years, meaning there is enough time between each coupon payment to allow the fund manager to reinvest at least some of its proceeds into other securities to increase returns over time while also minimising risk exposure through diversification.
6. Credit Risk Funds6
Credit Risk Funds
Credit risk funds are designed to take on higher levels of risk than other types of funds. The goal is to maximise your return while minimising the amount of credit you need to invest. These funds invest in debt securities of companies with a lower credit rating. Credit risk funds invest in subprime and leveraged loans, which are secured by collateral such as real estate, vehicles and other assets. These loans are more likely to default than companies with better ratings.
The main advantage of investing in credit risk funds is that it provides diversification benefits over standard bond funds. It also offers the opportunity to earn higher returns than fixed-income investments such as bank deposits and cash reserves.
7. Banking and PSU Fund7
Banking and PSU Fund
Banks and public sector undertakings (PSUs) are the two most important types of investment funds. Banking debt funds invest primarily in medium-term time deposits with banks. Time deposit refers to money deposited for a specific period of time at a fixed interest rate that does not change after it has been deposited. This means that even if interest rates go down, your money will still earn the same interest rate until the maturity date of your deposit note.
On the other hand, PSU bond funds invest primarily in short-term notes issued by the government or public sector enterprises (PSEs). Both types of debt funds have their benefits but may not be suitable for everyone.
8. GILT Funds8
Gilt funds are a type of debt fund that invest in gilts or bonds issued by the government. Gilt funds typically invest in various gilt issues and can be used to help diversify an investment portfolio. They have the advantage of being relatively low risk and are suitable for those with a limited appetite for risk but still want to participate in the equity markets.
Gilt funds are generally very liquid funds with regular reviews and trade throughout the day on a secondary market. They can also be bought and sold directly from your broker's website.
Gilt funds are usually considered appropriate for investors with moderate risk tolerance and various bonds available to suit your requirements.
9. Floating Rate Funds9
Floating Rate Funds
Floating rate funds have a floating rate of interest. This means that the interest paid by the fund is never fixed. Instead, it changes according to market conditions and other factors. Floating rate funds are popular because they offer the flexibility to invest in a wide range of investments without any restrictions on their interest rate.
The main benefit of floating rate funds is that you can use them for short-term investment purposes. This means you can use them for saving, investing in your retirement accounts, or even emergency funds.
10. Fixed Maturity Funds10
Fixed Maturity Funds
A fixed-maturity plan is a type of debt fund that invests in a single company. Unlike a regular debt fund, the investor is promised to receive a specific amount of money at some point in the future. The fixed-maturity plan has one objective, which is to be repaid by one entity.
For example, if you invest in a debt fund with a fixed maturity date, you will receive your principal (or interest) at the time of maturity. Therefore, you don't have to worry about losing any money if the company goes bankrupt as long as you pay back your principal at maturity.
The disadvantage of this type of investment is that it does not give you any options for investing or diversifying your portfolio. Therefore, if no dividends are coming from the company, then the value of your investment will only go down when interest rates rise or when inflation increases.