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Mutual Funds: Debt Funds Demystified



Ultra short-term funds: They invest in debt and money market instruments with a maturity ranging from 90 days to one year. Though they are riskier than liquid funds, investors get better and more tax-efficient returns.


Short-term bond funds: They invest in debt and money market instruments for one to two years.


Medium -term debt funds: They invest in bonds, debentures, government securities and money market instruments. They are more volatile in nature as their portfolios have instruments with longer maturity duration. But returns can be better.


Gilt funds: They primarily invest in government securities issued as a part of the government’s borrowing programme. Suited for those who are seeking safety and liquidity, the downside is that their prices fluctuate sharply due to higher sensitivity to interest rate movements.


Arbitrage funds: They aim to take advantage of the arbitrage opportunities that exist between the cash and derivatives markets. They buy in the cash market and sell futures at the same time. These funds are also called ‘market neutral funds’.

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