Categorization of Debt Mutual Fund Schemes

Posted by Aniruddh Bhilvare on February 05, 2020 · 6 mins read

As we know in previous article, SEBI has classified mutual fund schemes in the following categories:

  • Equity Schemes (10 categories)
  • Debt schemes (16 categories)
  • Hybrid Schemes (6 categories)
  • Solution Oriented Schemes (2 categories)
  • Other Schemes (2 categories)

In this article, we are going to learn about new categorization of Debt Mutual Fund Schemes. Debt schemes invest in fixed-income securities like government securities, debentures, corporate bonds and other money-market instruments. By investing money in such avenues, debt mutual funds lower the risk factor compared to Equity Funds but with lesser returns.

As per SEBI, Debt schemes have been classified into 16 categories, the features of which along with the uniform scheme description have been given below:

# Schemes Characteristics Uniform Description
1 Overnight Fund Invest in overnight securities having maturity of 1 day An open ended debt scheme investing in overnight securities
2 Liquid Fund Invest in Debt and money market securities with maturity of upto 91 days only An open ended liquid scheme
3 Ultra Short Duration Fund Invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months to 6 months An open ended ultra-short term debt scheme investing in instruments with Macaulay duration between 3 months and 6 months
4 Low Duration Fund Invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months to 12 months An open ended low duration debt scheme investing in instruments with Macaulay duration between 6 months and 12 months
5 Money Market Fund Invest in Money Market instruments having maturity upto 1 year An open ended debt scheme investing in money market instruments
6 Short Duration Fund Invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 1 year to 3 years An open ended short term debt scheme investing in instruments with Macaulay duration between 1 year and 3 years
7 Medium Duration Fund Invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 year to 4 years An open ended short term debt scheme investing in instruments with Macaulay duration between 3 year and 4 years
8 Medium to Long Duration Fund Invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 4 year to 7 years An open ended short term debt scheme investing in instruments with Macaulay duration between 4 year and 7 years
9 Long Duration Fund Invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is greater than 7 years An open ended short term debt scheme investing in instruments with Macaulay duration greater than 7 years
10 Dynamic Bond Investment across duration An open ended dynamic debt scheme investing across duration
11 Corporate Bond Fund Minimum investment in corporate bonds should be 80% of total assets (only in highest rated instruments) An open ended debt scheme predominantly investing in highest rated corporate bonds
12 Credit Risk Fund Minimum investment in corporate bonds should be 65% of total assets (investment in below highest rated instruments) An open ended debt scheme investing in below highest rated corporate bonds
13 Banking and PSU Fund Minimum investment in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions should be 80% of total assets An open ended debt scheme predominantly investing in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions
14 Gilt Fund Minimum investment in government securities(Gsec) should be 80% of total assets (across maturity) An open ended debt scheme investing in government securities across maturity
15 Gilt Fund with 10 year constant duration Minimum investment in government securities(Gsec) should be 80% of total assets such that the Macaulay duration of the portfolio is equal to 10 years An open ended debt scheme investing in government securities having a constant maturityof 10 years
16 Floater Fund Minimum investment in floating rate instruments should be 65% of total assets An open ended debt scheme predominantly investing in floating rate instruments
Macaulay duration is the weighted average term to maturity of the cash flows from a bond. The weight of each cash flow is determined by dividing the present value of the cash flow by the price.

In next article, we will review Hybrid mutual fund schemes.