Debt Mutual Funds — Types, Returns & Taxation
Debt mutual funds invest in fixed-income securities like government bonds, corporate bonds, and money market instruments. They offer more stability than equity funds.
Types of Debt Funds
Liquid funds (overnight to 91 days), ultra-short (3-6 months), short duration (1-3 years), corporate bond, gilt (government bonds), dynamic bond. Choose based on your investment horizon.
Returns
Debt funds typically return 6-9% annually. Liquid funds: 4-6%. Short duration: 6-8%. Dynamic bond: 7-9%. Returns are not guaranteed and depend on interest rate movements.
Taxation (Post April 2023)
All gains are taxed at your income tax slab rate, regardless of holding period. No indexation benefit. This makes debt funds less tax-efficient than before for high-bracket investors.