Understanding Different Types of Debt Securities in Debt Mutual Funds


  • Debt funds invest in debt securities such as non-convertible debentures, government securities, etc.
  • Read about them in detail here

Debt funds invest in debt securities such as corporate bonds, money market instruments, commercial paper, certificate of deposit, treasury bills and government securities. Different types of debt funds invest for varying maturities or duration of these securities. So, there could be a debt fund investing in securities maturing in a day, month, year, three years and more.

When investing in debt funds, you need to understand the portfolio. For that, it is important to know about the different types of debt securities that are bought by debt mutual funds in that portfolio. Let us understand these.

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Different Types of Debt Securities

Government Securities

The government is the largest borrower in the Indian debt markets – it borrows money by issuing securities of various periods. This is done to fund government expenditure on various things such as infrastructure, social spending, health, defence, education, etc. Government securities are the highest rated bonds in the country since the government is the guarantor in this case. The rating is SO (sovereign). They are a major means of financing Government deficits.

The Central Government issues treasury bills and bonds or dated securities while State Governments issue only bonds that are called State Development Loans (SDLs). Government securities or G-Secs, as they are called, do not carry any credit risk.

Treasury Bills

Treasury Bills are short term (up to one year) borrowing instruments of the Government of India which enable investors to park their short term surplus funds while reducing their market risk. They are auctioned by the Reserve Bank of India at regular intervals and issued at a discount to face value.

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Commercial Paper

Commercial paper, also called CP, is a short-term debt instrument issued by companies to raise funds generally for a period up to one year. It is an unsecured money market instrument.

Certificate of Deposit

The Certificate of Deposit (CD) is an agreement between a depositor and an authorized bank or financial institution. Depositors invest a certain amount for a tenure while banks and financial institutions pay interest on the invested amount.

Depositors, which can be individuals or companies, are issued a promissory note by the bank.


CBLO is a money market instrument that represents an obligation between a borrower and a lender. These instruments are operated by the Clearing Corporation of India Ltd. (CCIL) and Reserve Bank of India (RBI), with CCIL members being institutions with little to no access to the interbank call money market in India

Non-convertible Debentures

Non-convertible debentures (NCDs) are a financial instrument that is used by companies to raise long-term capital. This is done through a public issue. NCDs are a debt instrument with a fixed tenure and people who invest in these receive regular interest at a certain rate.

Corporate Bonds

Corporate bonds are debt securities issued by private and public corporations. … In exchange, the company promises to return the money, also known as “principal,” on a specified maturity date. Until that date, the company usually pays you a stated rate of interest, generally semi-annually.

Call Money

These are loans of short-term duration varying from 1 to 14 days and are traded in the call money market. The money that is lent for one day in this market is known as “Call Money”. Banks borrow in this money market to fill the gaps or temporary mismatches in funds, to meet the Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio(SLR) mandatory requirements as stipulated by the RBI.

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To know about different types of debt funds, you can read another post of ours – https://www.wishfin.com/mutual-fund/understanding-different-types-of-debt-mutual-funds/

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