Last updated: December 11th, 2017
Mutual funds have gained popularity over the last two decades. However, for the average investor, particularly the salaried class, investments in mutual funds have been mostly in equity mutual funds. For lower risk investments, bank FDs have remained the top choice compared to the other type of mutual funds – debt mutual funds.
Debt mutual funds function the same way as equity mutual funds, however, as the name suggests, they invest in various debt and fixed income products. These include various bonds, treasury bills, corporate deposits, government securities and money market instruments.Sounds complicated? Let us limit ourselves by understanding that they lend money to various borrowers and earn interest on the money lent. The borrowers are the Government, which is one of the largest borrowers, and various corporate bodies. These borrowers issue “receipts” for the money they have borrowed, which are called bonds, certificates, securities, etc.