Debt Mutual Funds: Types, Risks & Yields

How Debt Markets Work in India: The Foundation You Need

Before diving into debt fund categories, it helps to understand the underlying market in which these funds operate. India has two broad segments of the fixed-income market: the government securities (G-Sec) market and the corporate bond market, both of which feed into what is traded on recognised exchanges like the NSE and BSE, as well as the over-the-counter (OTC) wholesale market regulated by RBI and SEBI.

Government securities are debt instruments issued by the Central Government or state governments to finance fiscal deficits. Central government bonds are typically called G-Secs or gilts; state government bonds are called state development loans (SDLs). These carry no credit risk because they are backed by the sovereign, but they carry significant interest rate risk because their maturities can stretch up to 40 years. The benchmark 10-year G-Sec yield is watched closely by all market participants as it influences borrowing costs across the entire economy.

Treasury bills (T-Bills) are short-term government securities with maturities of 91 days, 182 days and 364 days. They are issued at a discount to face value and redeemed at par, so the difference represents the investor's return. Because of their short tenure and sovereign backing, T-Bills are among the safest, most liquid instruments in India's money markets.

Corporate bonds and debentures are issued by companies - public sector undertakings (PSUs) and private corporations - to raise debt capital. They carry credit risk (the risk that the issuer may default) in addition to interest rate risk. Credit rating agencies such as CRISIL, ICRA, CARE and India Ratings assign ratings to these instruments, ranging from AAA (highest safety) through various investment-grade levels down to speculative or default grades. Debt funds hold a portfolio of such instruments, and the fund manager's skill lies in balancing yield pickup against credit and duration risks.

The RBI plays a pivotal role: it sets the policy repo rate (the rate at which it lends overnight to commercial banks), which anchors the entire yield curve. When the RBI raises rates, newly issued bonds offer higher yields, making existing bonds with lower coupons less attractive - their prices fall. When the RBI cuts rates, existing bonds with higher coupons become more valuable - their prices rise. This inverse relationship between bond prices and interest rates is the single most important concept for any debt fund investor to internalise.

The bond yield is the annualised return an investor earns if they buy a bond today at its current market price and hold it to maturity, receiving all coupon payments along the way. Yield to maturity (YTM) is the standardised metric used to compare debt instruments. The YTM of a debt mutual fund's portfolio is the weighted average of the YTMs of all the bonds it holds, and it gives investors a reasonable (though not guaranteed) indication of the fund's expected return over the coming year, before expenses and taxes.

Understanding duration is equally vital. Duration measures a bond's price sensitivity to changes in interest rates. A bond with a duration of five years will see its price fall by approximately five percent if yields rise by one percentage point, and rise by approximately five percent if yields fall by one percentage point. Funds with higher portfolio duration are more sensitive to rate changes - offering larger gains in a rate-cut cycle but steeper losses when rates rise. This directly informs which fund category suits a given market outlook and investment horizon.

SEBI's Debt Fund Categories: A Complete Taxonomy

SEBI's October 2017 circular created 16 standardised categories for debt mutual funds, ensuring that each fund house could offer only one scheme per category and that the investment mandate was clearly defined. This rationalisation brought much-needed clarity to a market that previously had funds with overlapping mandates and misleading names. Here is a detailed look at each major category.

Overnight Funds invest exclusively in overnight securities - instruments maturing the very next day, such as tri-party repos (TREPS) and call money. Because the portfolio turns over daily, there is virtually no interest rate risk and negligible credit risk. These funds are primarily used by corporate treasuries and very large investors who need to park funds for a day or two. Returns closely track the overnight call money rate.

Liquid Funds invest in money-market instruments and debt securities with residual maturity up to 91 days. They are the go-to parking ground for emergency funds and short-term surpluses for both retail and institutional investors. SEBI has introduced a graded exit load for liquid funds to discourage very short-term churning, though this load is waived after seven days. The portfolio's short maturity means price volatility is minimal.

Ultra Short Duration Funds hold instruments with a Macaulay duration of three to six months. They offer slightly higher returns than liquid funds by venturing into slightly longer maturities, while still maintaining a low volatility profile.

Low Duration Funds maintain a portfolio Macaulay duration of six to twelve months. They are suitable for investors with a six-to-twelve-month horizon who want modestly better yields than liquid or ultra-short funds.

Money Market Funds invest only in money-market instruments - commercial paper, certificates of deposit, T-Bills and similar - with a maximum maturity of one year. They are distinct from liquid funds in that they may hold slightly longer-dated money-market paper.

Short Duration Funds target a Macaulay duration of one to three years. They are appropriate for investors with a one-to-three-year horizon and who accept moderate interest rate risk in exchange for higher potential returns.

Medium Duration Funds have a Macaulay duration of three to four years, while Medium to Long Duration Funds target four to seven years. Both categories significantly amplify interest rate sensitivity and are more suited to investors who have a view on the interest rate cycle.

Long Duration Funds maintain a Macaulay duration greater than seven years. These are the most interest-rate-sensitive category in the standard debt fund universe. They can deliver outsized returns in a rate-easing cycle but can suffer meaningful mark-to-market losses when rates rise.

Dynamic Bond Funds have no duration restriction. The fund manager actively adjusts the portfolio's duration based on their macroeconomic outlook - moving to long-duration bonds when they expect rates to fall, and to short-duration instruments when they expect rates to rise. These funds require investors to trust the fund manager's rate-call ability.

Corporate Bond Funds invest at least 80% of assets in the highest-rated corporate bonds (AA+ or above). They offer a yield pickup over equivalent-maturity G-Secs without venturing into riskier credit territory.

Credit Risk Funds invest at least 65% of assets in below-AA-rated instruments - AA and below - to harvest the additional yield these instruments offer. They carry meaningfully higher credit risk and have, in the past, suffered significant losses when issuers defaulted or were downgraded.

Banking and PSU Funds invest at least 80% in debt instruments of banks, public sector undertakings and public financial institutions. The implicit government backstop for many of these issuers makes this category a relatively safe way to earn a spread over pure G-Secs.

Gilt Funds invest at least 80% in government securities across maturities. They carry zero credit risk but can have very high duration risk. Gilt funds with a 10-year constant duration maintain a portfolio duration of approximately 10 years at all times, maximising sensitivity to rate movements.

Floater Funds invest at least 65% in floating-rate instruments, which reset their coupon periodically (often every 90 or 180 days) based on a reference rate like the RBI repo rate or MIBOR. This structure limits interest rate risk while maintaining reasonable yield.

Understanding Yield: What Drives Returns in Debt Funds

Investors in debt mutual funds encounter several yield-related terms that can be confusing. Understanding the distinction between them is crucial for realistic return expectations.

Coupon Rate is the fixed annual interest rate printed on a bond at the time of issuance. A government bond with a face value of ₹1,000 and a coupon rate of 7% pays ₹70 per year, regardless of what happens to market prices after issuance.

Current Yield is the annual coupon expressed as a percentage of the bond's current market price. If that same ₹1,000-face-value bond is trading at ₹950 in the secondary market, the current yield is ₹70 ÷ ₹950 = 7.37%. This is higher than the coupon rate because the bond is trading at a discount.

Yield to Maturity (YTM) is the most comprehensive measure. It accounts for the coupon payments, the difference between the purchase price and the face value received at maturity, and the time value of money. YTM is the internal rate of return (IRR) of all cash flows from a bond held to maturity. When you see a debt fund disclosing its portfolio YTM, that figure - minus the expense ratio and adjusted for reinvestment assumptions - approximates the return you might earn if you held the fund for a duration equal to the portfolio's average maturity and if no significant credit events occur.

The formula that connects price and yield is:

Bond Price = Σ [Coupon / (1 + YTM)^t] + [Face Value / (1 + YTM)^n]

where t runs from period 1 to n (the number of periods to maturity). This formula makes it clear: as YTM (the discount rate) rises, the present value of future cash flows falls, meaning bond prices fall. As YTM falls, bond prices rise.

For a debt mutual fund, the daily Net Asset Value (NAV) reflects the marked-to-market valuation of every bond in the portfolio. If rates rise sharply, NAVs fall. If rates fall, NAVs rise. This is fundamentally different from a bank fixed deposit, where the rate is locked in and the face value is never at risk (subject to DICGC coverage limits).

The spread is another important concept. It refers to the additional yield a bond offers over a comparable government security of the same maturity. A three-year AAA corporate bond might trade at a spread of 60 basis points (0.60%) over the three-year G-Sec. A three-year AA-rated bond might offer a spread of 120 basis points. This extra yield is the compensation investors receive for taking on credit risk. Debt fund managers constantly evaluate whether the spread being offered adequately compensates for the credit risk being assumed.

Accrual-based funds - typically short-duration categories - earn returns primarily through coupon accrual (collecting interest day by day) rather than through capital appreciation from falling yields. They behave more predictably, making them suitable for risk-averse investors. Duration-based funds deliberately pursue capital gains by positioning the portfolio for yield movements, and their NAVs can swing meaningfully.

Taxation of Debt Mutual Funds in India

The taxation framework for debt mutual funds in India has undergone significant changes, most notably through the Finance Act 2023. It is essential for every investor to understand the current tax treatment before choosing between debt funds and alternative instruments like fixed deposits or bonds.

Prior to 1 April 2023, debt mutual funds with less than 35% equity exposure were eligible for long-term capital gains (LTCG) tax at 20% with indexation benefit if held for more than three years. This indexation benefit - which adjusts the cost of acquisition for inflation using the Cost Inflation Index (CII) published by the Income Tax department - significantly reduced the effective tax liability and was a major reason debt funds were considered more tax-efficient than fixed deposits for investors in the higher income-tax brackets.

The Finance Act 2023 removed this benefit. From 1 April 2023, gains from debt mutual funds (those with less than 35% equity exposure) are taxed as short-term capital gains (STCG) at the investor's applicable income-tax slab rate, regardless of how long the units are held. This effectively placed debt fund taxation on par with bank fixed deposits for most investors, significantly diminishing the post-tax advantage that previously existed.

However, the taxation landscape remains nuanced. Funds that invest more than 35% but less than 65% in domestic equity - certain hybrid categories - may still attract different tax treatment. Always refer to the latest Finance Act and consult a qualified chartered accountant or tax adviser, as the rules can be revised with every Union Budget.

Despite the reduced tax advantage, debt funds still offer certain structural benefits over FDs. They offer intraday liquidity (subject to applicable exit loads), professional portfolio management, and diversification across many issuers. The dividend (income distribution cum capital withdrawal, or IDCW) option of debt funds sees payouts treated as income in the hands of the investor and taxed at slab rates, with a TDS applicable for dividends exceeding a specified threshold.

For NRI investors, TDS is deducted at source on gains from debt mutual fund redemptions at rates specified under the applicable Double Taxation Avoidance Agreement (DTAA) or the Income Tax Act, whichever is more beneficial. NRIs should verify current rates with a tax adviser familiar with their country of residence.

Systematic Withdrawal Plans (SWPs) from debt funds can be structured to provide a regular income stream. Each SWP instalment is partly a return of capital and partly a capital gain, and only the gain component is taxable - potentially making SWPs from debt funds tax-efficient compared to interest income from FDs, depending on the investor's overall tax situation.

Matching Debt Fund Categories to Financial Goals and Horizons

One of the most practical skills an investor can develop is mapping the right debt fund category to the right financial objective and time horizon. A mismatch - such as parking a six-month emergency fund in a long-duration gilt fund - can expose capital to unnecessary risk.

For a one-to-seven-day horizon - such as funds awaiting deployment into equities or a business payment - overnight funds are the most appropriate. There is no exit load after one day, and the portfolio has no price risk.

For a one-week to three-month horizon - such as saving for a quarterly insurance premium or a short-term business expense - liquid funds are ideal. Their NAVs are extremely stable, redemptions are processed within one business day (T+1), and the portfolio's short duration insulates against rate movements.

For a three-month to twelve-month horizon - such as building a pool for an upcoming down payment or annual tax payment - ultra short duration funds and money market funds are well-suited. They offer marginally higher yield than liquid funds while maintaining low volatility.

For a one-to-three-year horizon - perhaps saving for a car purchase or a child's school fees - short duration funds and banking & PSU funds are appropriate. They introduce some duration risk but have historically delivered returns superior to FDs over these horizons in rate-stable or rate-declining environments.

For a three-to-five-year horizon - such as building a corpus for a home down payment or planning for a major event - medium duration funds or corporate bond funds (if the investor accepts some credit risk, though the category mandates high-rated paper) can be considered. The investor should be comfortable with some NAV volatility during the holding period.

For five years and beyond - investors saving for retirement or long-term wealth creation might consider gilt funds or dynamic bond funds, ideally investing during a period of peak interest rates to benefit from capital appreciation when rates eventually decline. However, this requires either a clear macro view or willingness to wait through rate cycles.

For all-weather income generation - dynamic bond funds, when managed by experienced teams with strong macroeconomic research, can theoretically navigate different rate environments by adjusting duration. However, investors must remember that even expert fund managers can misjudge rate cycles, and the category has a wide dispersion of returns across funds.

For conservative investors replacing FDs - banking & PSU funds and corporate bond funds (high-quality paper only) offer a familiar experience: portfolio transparency, reasonable yield, and moderate risk. Post the Finance Act 2023 tax changes, the gap with FDs has narrowed, but the liquidity advantage of funds remains meaningful.

Goal-based investing in debt funds also involves understanding exit loads. Many categories carry an exit load of 0.25% to 1% if redeemed within a specified period (often one year for credit risk funds). Investors should check the scheme information document (SID) carefully before investing.

Reading a Debt Fund Factsheet: What to Look For

Every AMFI-registered mutual fund publishes a monthly factsheet - a document that summarises the portfolio, performance, risk metrics and other characteristics of every scheme the fund house manages. Learning to read a debt fund factsheet is an empowering skill.

Modified Duration: This tells you the price sensitivity of the portfolio. A modified duration of 3.5 years means the portfolio's NAV will change by approximately 3.5% for every 1% change in yields. A higher number means more interest rate risk. Compare this with your investment horizon: if you're investing for one year, a fund with modified duration of five years exposes you to significant mark-to-market risk.

Macaulay Duration: This is the weighted average time (in years) until the fund receives all cash flows from its bonds. SEBI uses Macaulay duration - not modified duration - to define category boundaries. The two are related (Modified Duration ≈ Macaulay Duration / (1 + YTM/frequency)) but measure slightly different things.

Yield to Maturity (Portfolio YTM): This is the weighted average YTM of all holdings, and it is the best single-number approximation of expected gross returns if held to maturity and if there are no credit events. Always subtract the fund's expense ratio to estimate net returns.

Average Maturity: This is the simple weighted average of the time to maturity of all bonds in the portfolio. It is not the same as duration, because it doesn't account for coupon payments, but it gives a quick sense of how long-term the portfolio is positioned.

Credit Quality Distribution: This is a breakdown of the portfolio by credit rating - what percentage is AAA, AA, A, and below. Higher proportions of lower-rated paper imply higher credit risk but potentially higher yield. A fund that has drifted toward lower-rated instruments without disclosing a clear mandate shift is a red flag.

Concentration by Issuer and Sector: The factsheet should list the top 10 or top 15 holdings. If a single issuer represents more than 10-15% of the portfolio (SEBI mandates a maximum of 10% per issuer for most categories, with some exceptions for government securities), or if a specific sector dominates, pay attention. Concentration amplifies both upside and downside risk.

Expense Ratio: This is the annual fee charged by the fund house, expressed as a percentage of AUM. SEBI caps expense ratios for debt funds. The difference between a direct plan (no distributor commission) and a regular plan can be 50 to 100 basis points annually in some categories - a significant drag on returns for long-term investors.

Trailing and Rolling Returns: Historical returns over one month, three months, six months, one year, three years and five years help investors assess consistency. Rolling returns - which calculate the average return over many overlapping periods of the same length - are more informative than trailing returns because they smooth out the impact of starting or ending on a particularly good or bad date.

AUM (Assets Under Management): Very small AUMs (below ₹100–200 crore) in a debt fund can be a concern because a few large institutional redemptions can force the manager to sell holdings at unfavourable prices, impacting all remaining investors. Very large AUMs can limit flexibility in the corporate bond market. Medium-sized, stable AUM is generally preferable.

Credit Events and What Happens When Things Go Wrong

India's debt mutual fund industry has experienced several periods of stress that provide important lessons for investors. While regulatory guardrails have strengthened considerably since 2018, understanding how credit events unfold in a debt fund helps investors make informed decisions.

A credit event in a debt fund typically begins with a credit rating downgrade. Rating agencies, which continuously monitor issuers, may downgrade a bond from, say, AA to AA- or further. The market price of that bond falls immediately to reflect the higher risk, and the fund's NAV drops accordingly. If the downgrade is severe - into the below-investment-grade (below BBB-) territory - the fall can be sharp and the bond's market liquidity can evaporate.

Side-pocketing is SEBI's mechanism to address this. When a security in a debt fund portfolio is downgraded to below-investment-grade or a credit event (default or near-default) occurs, the fund manager can create a separate portfolio (the 'side pocket') for the stressed asset. Investors who hold units at the time of the side pocket creation receive an equivalent number of units in the side-pocket portfolio. The main portfolio continues to operate normally with unimpaired assets. The side-pocket units can be redeemed only when the stressed asset is eventually recovered or sold - which may take months or years, and may result in partial or zero recovery.

The key lesson from past credit events is that credit risk funds - and some other categories that allowed lower-rated paper - are not capital-protected. Investors should approach them with the same mindset as a diversified lower-rated bond investment: higher yield potential, but with a real possibility of loss. They are not substitutes for FDs or liquid funds.

Risk-o-meter: SEBI mandates that every debt mutual fund display a risk-o-meter on a six-point scale from 'Low' to 'Very High Risk'. The risk-o-meter is recalibrated monthly based on the portfolio's actual holdings and their associated risks. Investors should check this label and understand what it means: a 'Moderate' rating reflects a combination of credit quality, duration and liquidity metrics that places the fund in a middle zone of the risk spectrum.

Fund manager quality and the AMC's risk management framework matter immensely in debt funds. Unlike equity funds where stock selection can be somewhat mechanically evaluated over time, credit assessment in debt funds requires deep fundamental research, legal document scrutiny, covenant monitoring and sector analysis. Asset management companies with robust credit teams and conservative mandates have historically delivered better risk-adjusted outcomes than those that aggressively chased yield.

Portfolio stress-testing: Sophisticated investors look for AMCs that publish stress-test results or liquidity metrics. SEBI has introduced regulatory requirements for AMCs to disclose the time it would take to wind down a percentage of the portfolio, giving investors a quantitative handle on liquidity risk at the portfolio level.

Debt Funds vs Fixed Deposits: A Structured Comparison

The comparison between debt mutual funds and bank fixed deposits is one of the most frequently debated topics in Indian personal finance. Both serve the purpose of generating income from surplus funds, but they differ across several important dimensions.

Safety: Bank FDs up to ₹5 lakh per depositor per bank are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme. Amounts above this threshold carry the credit risk of the specific bank. Debt funds carry no sovereign guarantee, but their risk profile depends entirely on the category chosen - a gilt fund investing only in government securities carries zero credit risk, while a credit risk fund carries meaningful credit risk.

Liquidity: Bank FDs have a defined tenure. Premature withdrawal is permitted by most banks but carries a penalty (typically 0.5% to 1% reduction in interest rate). Debt mutual funds can be redeemed on any business day. Overnight and liquid funds typically process redemptions within one business day (T+1 for up to ₹50,000 in liquid funds through instant redemption facilities). This flexibility is a genuine structural advantage for investors with uncertain cash-flow needs.

Returns: FD interest rates are fixed at the time of booking and don't change during the tenure. Debt fund returns are variable - they depend on the portfolio's coupon accrual plus or minus mark-to-market gains or losses. In a declining interest rate environment, debt funds (especially longer-duration ones) can significantly outperform FDs. In a rising rate environment, FDs (locked at earlier rates if booked before the hike) or new FDs (benefiting from higher current rates) may offer better outcomes for risk-averse investors.

Taxation: Post the Finance Act 2023, both bank FD interest and debt fund gains (for sub-35% equity allocation schemes) are taxed at the investor's slab rate. The indexation advantage that debt funds previously held has been removed for new investments. However, for investors in the 10% or 20% bracket, the effective tax burden may still be similar to FDs, and the other advantages of debt funds remain.

Transparency and disclosure: Debt funds disclose their full portfolio every month. Investors can see exactly what bonds the fund holds, the credit ratings, maturities, and concentration. No such portfolio disclosure exists for bank FDs - investors simply trust the bank's overall balance sheet. This transparency can be either reassuring (for sophisticated investors who want to audit quality) or overwhelming (for those who prefer simplicity).

Minimum investment: Many debt fund schemes accept investments as low as ₹500 (in SIP mode) or ₹1,000 (lump sum). Bank FDs have minimum deposit requirements that vary by bank, typically ₹1,000 to ₹10,000, with some special-rate FDs requiring significantly higher amounts. The low minimum of debt funds allows greater flexibility in deploying funds of any size.

Systematic Approaches to Investing in Debt Funds

Debt mutual funds lend themselves well to systematic investment strategies that help manage timing risk, generate regular income, or transition between asset classes in an organised manner.

Systematic Investment Plan (SIP) in debt funds is less common than SIPs in equity funds, but it is entirely feasible. An SIP into a short-duration or ultra-short-duration fund allows investors to accumulate a corpus steadily, benefiting from rupee-cost averaging of the fund's NAV across different rate environments. This is particularly useful for investors building an emergency fund or a short-term goal corpus.

Systematic Withdrawal Plan (SWP) is where debt funds genuinely shine for income-seeking investors, particularly retirees. An investor can park a large corpus in a debt fund - such as a banking & PSU fund or a short-duration fund - and instruct the fund house to redeem a fixed amount each month. The redeemed units are credited to the investor's bank account, providing a monthly income stream. Unlike dividend payouts (IDCW), an SWP's tax efficiency comes from the fact that only the capital-gain component of each withdrawal is taxable, not the full redemption amount.

Systematic Transfer Plan (STP) is a technique where an investor parks a lump sum in a liquid or ultra-short-duration debt fund and sets up an automatic transfer of a fixed amount into an equity fund each month. This is a popular way to invest a large lump sum into equity markets without deploying all of it at once, thereby reducing the risk of entering at a market peak. The debt fund earns returns on the uninvested corpus while the equity portion is built gradually.

Debt-to-equity rebalancing: Many investors use debt funds as the fixed-income leg of a balanced portfolio. When equity markets run up strongly, the equity allocation exceeds the target percentage, and the investor systematically moves profits from equity to debt funds. When equity markets fall, funds are transferred from debt to equity to restore the target allocation. This disciplined rebalancing process - which can be facilitated through STPs - has historically improved risk-adjusted returns compared to a static allocation.

Laddering with debt funds: Borrowing the concept from fixed deposit laddering, investors can deploy money across debt funds with different maturities or duration profiles. A portion in liquid funds provides emergency access, a portion in short-duration funds handles medium-term needs, and a portion in longer-duration or gilt funds provides interest rate exposure for capital appreciation potential. As each tranche approaches the investor's target horizon, it is rolled over or redeemed, maintaining the ladder structure.

All systematic approaches - SIPs, SWPs, STPs - are automated instructions given to the fund house and execute on specified dates without requiring the investor to place individual orders. This removes emotional decision-making and ensures discipline, which is often the most underrated driver of long-term investment success.

Example

Key benefits

How it works

1. 1
   Investor Pools Money via AMC

   Investors purchase units of a debt mutual fund from an asset management company (AMC) either directly through the AMC's platform or through SEBI-registered distributors and online platforms, at the prevailing NAV of the scheme.

2. 2
   Fund Manager Deploys Capital

   The fund manager invests the pooled corpus in fixed-income securities - government bonds, corporate bonds, money-market instruments - strictly within the investment mandate defined by SEBI's category rules and the scheme's own investment objectives.

3. 3
   Daily Mark-to-Market Valuation

   Each business day, all securities in the portfolio are valued at their current market prices (as mandated by SEBI and AMFI's valuation guidelines), and the resulting total portfolio value divided by the number of outstanding units gives the day's NAV.

4. 4
   Accrual of Income

   As each day passes, the interest (coupon) owed on every bond in the portfolio accrues to the fund, increasing the NAV gradually - this is the 'income accrual' component. Capital gains or losses from bond price movements are layered on top.

5. 5
   Dividend or Growth Option

   Under the growth option, all accrued income and capital gains stay within the fund, compounding the NAV. Under the IDCW (Income Distribution cum Capital Withdrawal) option, the fund periodically distributes a portion of its realised gains or income to unitholders, reducing the NAV by the distributed amount.

6. 6
   Redemption

   When an investor redeems units, the fund manager sells the required portion of the portfolio (or uses available cash), and the investor receives the redemption amount based on the applicable NAV, typically within one to two business days (T+1 for liquid funds, T+2 or T+3 for other debt categories).

7. 7
   Tax Calculation and Settlement

   On redemption, capital gains are calculated as the difference between redemption price and cost of acquisition. Applicable taxes (currently at slab rate for most debt fund categories, per the Finance Act 2023) are the investor's responsibility to report and pay. TDS may be deducted for NRI investors or on IDCW payouts above specified thresholds.

Formula

Portfolio YTM (net of expenses) ≈ Weighted Average YTM of all holdings − Fund Expense Ratio
Modified Duration ≈ Macaulay Duration ÷ (1 + Portfolio YTM / coupon frequency)

Key takeaways

Frequently asked questions

Related terms