What debt funds hold
Government securities, treasury bills, corporate bonds, commercial papers and certificates of deposit. You earn the interest they pay plus or minus price changes as interest rates move.
Types by how long the papers last
| Category | Typical holding | Common use |
|---|---|---|
| Overnight | 1-day papers | Parking money for days |
| Liquid | Up to 91 days | Emergency or idle cash |
| Ultra short / low duration | 3–12 months | Money needed within a year |
| Money market | Up to 1 year | Short-term parking |
| Short duration | 1–3 years | Goals 1–3 years away |
| Medium and long duration | 3–7+ years | Those comfortable with rate swings |
| Dynamic bond | Manager changes duration | Rate-cycle bets, left to the manager |
| Gilt | At least 80% government securities | No credit risk, rate risk remains |
And by credit: corporate bond funds (at least 80% in the highest-rated papers), banking & PSU funds, and credit risk funds (at least 65% in lower-rated papers — higher yield, higher risk).
The two risks
- Interest-rate risk: when rates rise, bond prices fall. The longer the fund's duration, the bigger the effect. Liquid and overnight funds barely move.
- Credit risk: a company can default or be downgraded, cutting the NAV overnight. Check the portfolio's ratings and the fund's potential risk class shown in its documents.
Tax
Debt-oriented fund units (more than 65% in debt) bought on or after 1 April 2023 are taxed at your slab rate whatever the holding period — like FD interest, but only when you sell, not every year. Units bought before that date keep older rules.
Debt fund or FD?
Liquid funds can be redeemed in a day and suit an emergency kitty; FDs give a fixed, insured return. See FD vs mutual funds for a full comparison.
Mutual fund investments are subject to market risks; read all scheme-related documents carefully.
For general information only, not investment advice or a recommendation. Oxon Fintech is a loan facilitation platform, not a SEBI-registered investment adviser, bank or mutual fund distributor, and does not sell bonds, deposits or funds. Rates and rules are as checked on the date above; confirm with the issuer, bank or fund house before investing. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.