Reviewed by Rajnish Bangia, Founder — Gayatri Financial Synergy (AMFI-registered Mutual Fund Distributor) · Last updated July 2026
Bias disclosure up front: Gayatri Financial Synergy is an AMFI-registered mutual fund distributor and may earn commission on the regular plans investors buy through us. This guide is educational and does not recommend any scheme or category.
"Debt fund" sounds like a single product, but it is actually a large family. To end the confusion of funds with similar names holding very different things, SEBI laid down a standard set of debt scheme categories, each with a defined mandate. Once you know how the categories are organised, a fund's name tells you a great deal about what it holds and the kind of risk it carries. This guide maps them out — factually, without ranking any of them.
1. First, the Two Risks Every Debt Fund Carries
Before the categories make sense, you need the two dials that separate them:
- Interest-rate risk (duration): bond prices move opposite to interest rates. The longer a fund's average maturity/duration, the more its NAV swings when rates change. Short-maturity funds are steadier; long-maturity funds are more sensitive.
- Credit risk: the chance that a borrower whose bond the fund holds fails to pay. Funds that lend to the safest borrowers (like the government) carry low credit risk; funds that hold lower-rated corporate bonds carry more.
Almost every SEBI category is essentially a fixed point on these two dials. Keep them in mind and the list below reads easily. (If you are new to funds entirely, start with what a mutual fund is and how it works.)
2. Very Short-Maturity Categories
These sit at the low end of the interest-rate dial and are typically used for short parking horizons. They are not risk-free.
- Overnight Fund — invests in securities maturing in a single day. The lowest interest-rate risk in the family.
- Liquid Fund — invests in instruments maturing within 91 days.
- Ultra Short Duration Fund — portfolio Macaulay duration of 3 to 6 months.
- Low Duration Fund — Macaulay duration of 6 to 12 months.
- Money Market Fund — invests in money-market instruments maturing up to 1 year.
3. Short-to-Medium Maturity Categories
Moving up the duration dial, these carry more interest-rate sensitivity in exchange for a different return profile.
- Short Duration Fund — Macaulay duration of 1 to 3 years.
- Medium Duration Fund — Macaulay duration of 3 to 4 years.
- Medium to Long Duration Fund — Macaulay duration of 4 to 7 years.
- Long Duration Fund — Macaulay duration greater than 7 years, the most interest-rate sensitive of the duration-defined set.
4. Categories Defined by What They Hold
Some categories are defined not by a duration band but by the type of issuer or strategy.
- Corporate Bond Fund — at least 80% in the highest-rated (AA+ and above) corporate bonds.
- Credit Risk Fund — at least 65% in bonds rated AA and below, deliberately taking more credit risk in pursuit of higher accrual. Higher credit risk than most peers.
- Banking and PSU Fund — at least 80% in debt of banks, public-sector undertakings, and public financial institutions.
- Gilt Fund — at least 80% in government securities across maturities. Very low credit risk (sovereign) but can carry meaningful interest-rate risk.
- Gilt Fund with 10-year Constant Duration — government securities with the portfolio duration held near 10 years.
5. Flexible and Special Categories
- Dynamic Bond Fund — the manager is free to move across durations depending on the rate outlook, so its interest-rate risk changes over time.
- Floater Fund — at least 65% in floating-rate instruments, whose coupons reset with rates.
There are additional structures such as Fixed Maturity Plans (FMPs) — close-ended funds that hold bonds to a set maturity — which sit alongside these open-ended categories.
6. How to Actually Use This Map
You do not need to memorise all sixteen. The practical habit is simpler: when you look at any debt fund, ask two questions —
- How long is its duration? (That sets its interest-rate sensitivity.)
- Whose bonds does it hold? (That sets its credit risk.)
The category name answers both. The fund's Scheme Information Document and monthly factsheet confirm the exact portfolio, average maturity, and credit-quality breakdown. This article deliberately does not say which category is "best" or suits you — that depends on your horizon, liquidity needs, and risk tolerance, and is a decision for you with a qualified adviser. For a broader view of fund risk, see is a mutual fund safe?
Summary
SEBI's debt categories are really just fixed positions on two dials — interest-rate risk (duration) and credit risk (issuer quality). Very short-maturity categories like overnight and liquid funds sit at the low-duration end; long duration and gilt funds carry more rate sensitivity; credit risk funds deliberately take on more default risk. Read any debt fund by its duration and what it holds, and the category name will tell you most of the story. None of them is risk-free, and none is recommended here.
Frequently Asked Questions
Are debt funds safer than equity funds?
Debt funds are generally less volatile than equity funds, but they are not risk-free — they carry interest-rate and credit risk, which vary widely across the categories above.
What is Macaulay duration?
It is a measure, in years, of a bond portfolio's sensitivity to interest-rate changes. SEBI uses it to define several debt categories. Higher duration means larger NAV swings when rates move.
Which debt fund category is best?
There is no universally "best" category. Each is designed for a different combination of horizon and risk. The right fit depends entirely on your own goals and circumstances, which is why this guide does not rank them.
Do debt funds give guaranteed returns?
No. Their NAV moves with bond prices and can fall. Debt funds do not offer assured returns or capital protection.
What This Guide Is NOT
This article is a factual map of SEBI's debt fund categories. It does not recommend any category, scheme, or AMC, does not label any category as safe or best, and does not promise any return. Category rules can be updated by the regulator over time. Read the Scheme Information Document and factsheet of any fund you consider, and consult a registered investment adviser for advice suited to your situation.
This article was reviewed by Rajnish Bangia, Founder of Gayatri Financial Synergy — an AMFI-registered Mutual Fund Distributor serving investors across Faridabad and Delhi NCR since 2002. Bias disclosure: Gayatri Financial Synergy is an AMFI-registered mutual fund distributor and may earn commission on regular plans facilitated through us; direct plans pay no distributor commission. This is educational content, not investment advice, and no scheme is recommended. Mutual fund investments are subject to market risks; read all scheme-related documents carefully. Past performance is not indicative of future results.