Mutual Funds · Category
Explore & investDebt Funds
Funds that lend to the government, banks and companies, and earn interest. Usually steadier than equity — but not free of risk.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
At a glance
- Who typically explores it
- Typically explored for goals one to five years away, to balance an equity-heavy portfolio, or to hold money that should stay relatively stable — chosen by matching the fund’s duration to the horizon.
- Time horizon
- Match duration to horizon: days to months for overnight and liquid funds, around one to three years for short-duration funds, and longer for gilt and long-duration funds.
- Volatility
- Low to moderate. Longer-duration and lower-rated funds can see sharp NAV moves when interest rates change or a borrower is downgraded.
A general description of the category. Individual schemes differ — read each scheme’s documents.
Understand
01Debt Funds
What debt funds are
A debt fund buys bonds, government securities, treasury bills and money-market instruments. Its return comes from two sources: the interest those instruments pay, and changes in their market prices. When interest rates rise, existing bonds become less valuable and NAVs dip; when rates fall, the opposite happens. The longer a fund's duration, the bigger that effect.
02Debt Funds
Two dials: duration and credit
Almost every debt fund can be placed on two scales.
- Duration — how sensitive the portfolio is to interest-rate changes. Overnight, liquid and money-market funds sit at the short end; short, medium and long duration funds step out from there; dynamic bond funds move along the scale as the manager sees fit.
- Credit — who the fund lends to. Gilt funds hold government securities, with no credit risk but plenty of interest-rate risk. Corporate bond and banking & PSU funds lend mostly to highly rated borrowers. Credit risk funds deliberately hold lower-rated paper for higher yield — and higher chance of a default or downgrade.
Since February 2026, SEBI also permits sectoral debt funds, which lend to one sector (such as housing or infrastructure) and may hold only bonds rated AA+ or above.
03Debt Funds
Reading a debt fund
| What to check | Why it matters |
|---|---|
| Portfolio YTM | The yield the holdings would earn if held to maturity — not a promised return |
| Modified duration | Roughly how much the NAV moves for a 1% change in rates |
| Credit ratings | How much of the fund is in lower-rated paper |
| Potential Risk Class | SEBI's matrix of interest-rate risk against credit risk |
| Expense ratio | Costs matter more when returns are modest |
The simplest rule: match the fund's duration to when you need the money.
Ideas to know
How gains are taxed
Debt Funds: tax in brief
For units bought on or after 1 April 2023 in funds that invest more than 65% in debt and money-market instruments, gains are added to your income and taxed at your slab rate, however long you hold them. Units bought earlier follow transitional rules. Tax rules change and depend on your circumstances. This is general education, not tax advice — check the latest provisions or speak to a tax professional.
Schemes in debt funds
Live scheme data isn’t connected yet
Before you decide
Risks to understand
Interest-rate risk
When rates rise, bond prices fall. Longer-duration funds feel this most. See interest-rate risk.
Credit risk
A borrower can be downgraded or default, cutting the value of its bonds — sometimes suddenly.
Liquidity risk
Some corporate bonds trade rarely. In stress, a fund may struggle to sell them at fair prices.
Reinvestment risk
When bonds mature or pay interest, the money may have to be reinvested at lower rates.
The riskometer, SIPs and common questions
Related
Plan for it
Other categories
Next step
Small decisions compound.
Model a SIP with your own assumptions, size the goal it’s for, or talk to a CompoundX expert about how this category fits what you already own.
Disclosures
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
Past performance may or may not be sustained in future. Calculators and illustrations on this site use hypothetical assumptions; actual returns may differ.
[To be confirmed by Compliance] Mutual-fund onboarding, KYC and transaction execution are processed through the platform of our investment platform partner, AssetPlus. CompoundX provides education, tools and relationship management, and does not hold client money or units. Registration details, where applicable, are listed on our Disclosures page.
Partner: AssetPlus · Investment platform
CompoundX works with AssetPlus as its investment platform partner. When you choose to invest in mutual funds through CompoundX, account opening, KYC and transaction execution are processed through AssetPlus' platform, which connects to the asset management companies, registrars and other market infrastructure involved.
CompoundX provides the education, financial tools, goal planning and relationship management around those investments. CompoundX does not hold client money or mutual-fund units. [To be confirmed by Compliance]
Registration details for CompoundX and its partners, where applicable, are listed on our Disclosures page.
Risk disclosure
Market-linked investments involve risk, including the possible loss of the amount invested. Past performance does not indicate future results, and the value of investments and the income from them can go down as well as up.
Deposits, bonds and other fixed-income products carry credit, interest-rate and liquidity risks; returns depend on the issuer honouring its obligations. Insurance is a contract of protection, not an investment. Read every offer document, scheme information document and policy wording carefully before you decide.