8.21Debt mutual funds
1What is it?
Debt funds invest in bonds, government securities, treasury bills and other fixed-income instruments.
2Why does it exist?
For stability and income, lower volatility than equity. Risks include interest-rate risk (bond prices fall when rates rise) and credit risk (a borrower defaults).
3Diagram
| Invests in | Suits | Risk | Suggested horizon |
|---|---|---|---|
| Bonds, G-secs, T-bills | Short–medium goals, stability | Low–moderate | Days–3 years (by type) |
4Quick revision
- Debt funds invest in bonds, government securities, treasury bills and other fixed-income instruments.
- Risk: Low–moderate.
- Horizon: Days–3 years (by type).
5Knowledge check
Q1. Two risks of debt funds?Show answer
Interest-rate risk and credit risk.
Q2. Are debt funds risk-free?Show answer
No.
Q3. What happens to bond prices when rates rise?Show answer
They fall.
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