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Where do debt mutual funds invest their assets/money?

Debt mutual funds invest in debt instruments as per their investment mandate. These mutual funds can invest in different types of debt instruments. Depending on their investment mandate, debt mutual funds can be specific in their investments. For instance, Banking and PSU funds invest in banks, PSUs, PFI, etc., gilt funds invest in government bonds, long-duration funds invest in long-maturity debts, and so on.


Where do debt mutual funds invest?

Here are some of the popular instruments that debts funds invest in:

  1. Repurchase agreements: Often referred to as repo, it is used to borrow funds by selling securities. The securities are sold with an agreement to repurchase on an agreed future date and at a specific price. The agreed price also includes an interest amount for the borrowing.
  2. TREPS: A tri-party repo is a repo contract where a party other than the borrower and the lender mediates the two parties in the repo deal. The third party is known as a tri-party agent.
  3. Certificates of Deposits (CD): A promissory note issued by scheduled commercial banks and selected financial institutions. It is a negotiable money market instrument that can be in dematerialized form.
  4. Commercial Papers: These are issued by corporate firms and are unsecured promissory notes issued as short-term debt. It pays a fixed rate of interest.
  5. T Bills: Treasury bills are money market instruments issued by the government of India. These, too, are promissory notes with a guarantee of future repayment. Government issues T-bills to meet its short-term financial requirements.

These instruments are popular options for short-term debt mutual funds. However, for long-term investments, contributions to debt SIP schemes are invested in tools like,

  1. Government securities: These are instruments like treasury bonds, bills, or dated securities issued by the central or state governments. These are risk-free instruments that offer a fixed rate of return as interest.
  2. Bonds and debentures: Bonds are issued by governments, government agencies, and large corporations. Bonds are secured and therefore considered less risky. Public companies issue debentures as money-raising instruments. Debentures can be secured or unsecured and can offer high interest rates.
  3. Securitized debts: Securitization is when individual loans are converted into securities. The security owner receives an income from the loan, hence “asset-backed securities”. Mortgage-backed securities are secured through real estate loans. On the other hand, asset-backed securities are bonds created from consumer debts.


Debt mutual fund-based SIPs are a safe bet that offers a steady return. Tata Capital Moneyfy App has information on all the debt mutual funds available in the market. You can use your Tata Capital Moneyfy App profile to invest in debt funds and reap the benefit of a stable income on your SIP.

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