A debt fund invests in bonds, government securities and money-market instruments, earning interest and gaining or losing as their prices change.
A debt fund lends money. It buys bonds issued by the government, banks and companies, and short-term instruments such as treasury bills, commercial paper and certificates of deposit.
Its return comes from two sources:
The main risks are interest rate risk, measured by modified duration, and credit risk, the chance an issuer does not pay. The fund's YTM gives a rough idea of what its holdings yield today.
SEBI sorts debt funds into 16 categories by what they hold and for how long, from overnight and liquid funds to gilt funds that hold only government securities.
A debt fund has no fixed return, unlike a bank fixed deposit, and its NAV can fall. For units bought on or after 1 April 2023, all gains are taxed at your income tax slab rate, however long you hold them. Debt funds vs FD compares the tax on the two.
FD interest is taxed every year as it builds up. A debt fund's gain is taxed only in the year you sell. Since April 2023 both are taxed at your slab rate. A worked example on ₹10 lakh.
The tax on a mutual fund gain depends on what the fund holds and how long you held the units. The 2026-27 rates in one table, with what each group of funds covers.
Each fund page has its returns, risk, costs, managers and everything it holds.