A mutual fund is a professionally managed company that collects the money of many investors and invests it in securities such as stocks, bonds and short-term debts, equity or bond funds, and money market funds.
Mutual funds are a good investment for investors who want to diversify their portfolio. Instead of focusing everything on one company or sector, a mutual fund invests in different securities to try to minimize portfolio risk
.
The term is typically used in the United States, Canada, and India, while similar structures around the world include the SICAV in Europe and the open-type investment firm in the United Kingdom.
Debt funds are classified into different types based on the type of securities in which they invest and the maturity (time horizon) of these securities. Debt securities include bonds issued by companies, banks, and governments, bonds issued by large corporations, money market instruments such as commercial cards, and certificates of deposit (CDs)
issued by banks.
Debt funds are classified as follows:
- Overnight funds — investing in one-day securities (securities)
- Liquid Funds — investing in money market instruments maturing within 90 days Variable-rate funds — investing in variable-rate debt securities
- Ultra-short-term funds — investing in debt securities maturing in 3-6 months
- Short-term fund — invest in securities maturing within 6-12 months
- Money market funds — investing in money market instruments with a maturity of up to 1 year
- Short-term funds — investing in securities with a maturity of 1-3 years
- Medium-term funds — investing in debt securities with a maturity of 3-4 years
- Medium and long-term funds — investing in debt securities with a maturity of 4-7 years
- Long-term funds — investing in long-term debt (more than 7 years)
- Corporate bond funds — investing in corporate bonds
- Bank funds and PSU — investing in debts from banks, PSU, PFI
- Gold funds — investing in government bonds with various maturity dates
- Gilt Fund with a constant duration of 10 years — invest in G-secs with a maturity of 10 years
- Dynamic funds — investing in all-maturity debt fund securities Credit risk funds — investing in corporate bonds below the highest ratings