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Debt funds are financial instruments which primarily invest in fixed-income earning instruments i.e. treasury bills, corporate bonds, government securities, commercial paper, and other money market instruments.
Debt mutual funds are those funds which invest in fixed income earning instruments like certificate of deposits and government treasury bills. The primary objective of a debt fund is to provide steady income through appreciation of the fund value. They are relatively safe as the underlying securities generate interest at a fixed rate throughout the policy tenure. The underlying security is selected by the fund manager on the basis of its credit rating. For example, a higher credit rating states that a debt security has a higher chance of paying interest regularly along with repayment of the principal amount.
You can evaluate a debt fund based on the following parameters:
Debt mutual funds are suitable for conservative investors who do not seek additional exposure to risk arising from the economic market. They expect minimum volatility along with regular income. Also, you need to select an appropriate debt fund as per your investment horizon.