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These schemes invest in both short term bonds and very short term instruments. They invest in treasury bills, commercial papers, certificates of deposits and so on to take care of their liquidity needs. They also invest in corporate bonds, government securities, etc.
According to Sebi norms, medium to long term funds have a mandate to invest in debt and money market instruments in such a way that the Macaulay's duration of the portfolio is four to seven years.
Gilt funds are not recommended to regular debt investors because they are risky and volatile. Gilt funds suffer the most when the rates go up. The bond prices and yields move in opposite directions. When the rates go up, bond prices come down. This drags down the NAVs of schemes.
These schemes invest at least 80% of their corpus in the papers of the highest-rated companies. This makes them relatively safer than other debt schemes such as credit risk funds. They are also safer than gilt funds and long term debt funds that are highly sensitive to interest rate changes in the economy.
Discover the top Banking & PSU mutual funds to invest in April 2024. Understand the safety and risks involved in these debt funds. Learn about the methodology used to shortlist the best funds for investment.