Freecharge's video: What to Invest in Mutual Fund with low Risk Debt Funds freecharge

Good mutual fund investing requires a strong understanding of debt mutual funds. Simply put, a debt mutual fund scheme is one that invests in fixed income instruments like bonds, debt securities, money market instruments, etc. and aims to offer capital appreciation to its investors. In this first of many debt mutual funds related videos, ETMONEY’s Shankar Nath explains the basics of debt fund investing and different types of debt mutual funds which shall become the basis for more advanced discussions 👉 What is the meaning for debt? Debt means a loan or a liability that one needs to pay back. A number of institutions borrow money to support their financing needs which includes the central government, the state government, banks, NBFCs, infrastructure finance companies, home loan providers and regular corporates. 👉 How does debt work? The borrower issues a bond and is whence known as the bond issuer. Similar, the person (someone like you) who purchases the bond is the bond holder. A mutual fund acts as a bondholder although other institutions and even individuals can buy bonds. Every bond has a term or maturity date and most come with a coupon or interest rate. E.g. Bond X is priced at ₹1,000 which has a term of 3 years and offers a coupon of 7% annually A bond is merely a promise and as it is possible that the bond issuer may not have enough money to pay some or the entire amount, there is an element of credit risk in debt Similarly, bonds can be traded and there is a thriving exchange market where debt instruments are bought and sold between parties. 👉 How are bonds priced? In theory, the current price of a bond is simply the summation of its future cashflows discounted back to its present value. This interest rate or discount used in this calculation is more commonly referred to as the bond’s yield to maturity or YTM. The price of bonds change on account of changes in the YTM or changes in interest rates. It is this interplay between interest rates, bond prices, credit risk etc. that investors and fund managers are constantly trying to master through experience and learning. 👉 Types of Debt Mutual Funds There are many types of debt funds which can be divided into different buckets per their characteristics. The different types of debt funds are: ► OVERNIGHT FUND ► LIQUID FUND ► ULTRA SHORT FUND ► LOW DURATION FUND ► MONEY MARKET FUND ► SHORT DURATION FUND ► CORPORATE BOND FUND ► CREDIT RISK FUND ► BANKING & PSU FUND ► DYNAMIC BOND FUND ► MEDIUM DURATION FUND ► GILT FUND ► GILT WITH 10Y CONSTANT DURATION FUND ► MEDIUM TO LONG DURATION FUND ► LONG DURATION FUND ► FLOATER FUND 👉 Comparison between Different Debt Fund Types In this video, we have examined different types of debt mutual funds on the basis of: ► Investment Objectives ► Investing Strategy (Accrual and Duration Strategy) ► Interest Rate Risk ► Credit Risk ► Performance of Debt Mutual Funds