Debt funds invest in debt securities such as corporate bonds, money market instruments, commercial paper, certificates of deposit, treasury bills and government securities. Different debt Mutual funds invest in different maturities or maturities of these securities. Therefore, debt funds may invest in securities with maturities of one day, one month, one year, three years or longer.
When investing in debt mutual funds, you need to understand your portfolio. To do this, it is important to understand the different types of debt securities a debt mutual fund purchases in its portfolio. Let’s understand these.
Various types of debt instruments
Government bond for Debt Mutual Funds
The government is the largest borrower in the Indian bond market, borrowing money by issuing securities of various maturities. This is done to fund government spending on various things such as infrastructure, social spending, health, defense, and education. In this case, government bonds are the highest rated bonds in the country, as the government is the guarantor. The rating is SO (sovereign). Hence, they are an important means of financing government deficits. The central government issues treasury bills and government bonds or dated securities, while state governments only issue government bonds known as state development loans (SDLs). Government bonds, or what is known as G-Secs, carry no credit risk.
Federal Reserve Notes
The Government of India issues Treasury Bills, which are short-term (up to one year) bonds that enable investors to deposit short-term surplus funds while reducing market risk. The Reserve Bank of India periodically auctions them off and issues them for less than face value.
Commercial Paper
Commercial paper, often called CP, is a type of short-term debt that businesses issue to borrow money, typically for up to one year. This money market commodity is insecure.
An attestation of deposit
A Certificate of Deposit (CD) is an agreement between a depositor and a bank or other financial institution that has been granted licenses. Banks and other financial institutions pay interest on the money that depositors invest for a specific duration of time.
The bank issues a promissory note to a depositor who may be an individual or business.
CBLO
An obligation between a borrower and a lender is represented by a CBLO, a financial market instrument. The Clearing Corporation of India Ltd. (CCIL) and the Reserve Bank of India (RBI) are the issuers of these certificates. The CCIL members are organizations with limited or no access to the Indian overnight interbank market.
Untransformable notebook
Companies can raise long-term financing using a financial instrument called non-convertible debt security (NCD). Public issues are used to do this. NCDs are fixed-term debt instruments that pay periodic interest to investors at a set rate.
Company bond
Corporate bonds are those that are issued by both public and private businesses. … In exchange, the business guarantees that the money, often known as the “principal,” will be repaid by the deadline. In addition, the business normally makes a fixed interest payment every six months up until that point.
Per diem
These loans trade on the overnight money market and have short maturities between 1 and 14 days. Call money is the term for the daily loans made in this market. To close funding gaps, correct short-term imbalances, and satisfy RBI-mandated Cash Reserve Ratio (CRR) and Regulatory Liquidity Ratio (SLR) criteria, banks borrow money from this money market.