Mutual fund Unlocked: Debt mutual fund categories

Market regulator SEBI (Securities and Exchange Board of India) has directed fund houses to re-categories the universe of their offerings in distinct and new categories specified by the SEBI. Under debt funds category, there are 16 sub categories under which the fund houses need to realign their existing schemes. This move eyes to bring uniformity in the practice of categorizing schemes across mutual funds.

With respect to the circular issued by SEBI, all the mutual fund houses have started realigning their product baskets. The fund houses are changing the attributes of the scheme as well as merging the schemes to adhere to the rules defined by SEBI.

Here are the Debt categories defined by the SEBI and the asset classes where the particular schemes are expected to invest.

Overnight funds: These open-ended schemes will invest in overnight securities with a maturity of one day.

Liquid funds: These schemes will invest in money market securities and debts with a maturity of up to 91 days.

Ultra-short duration funds: These open-ended schemes are ultra-short term debt schemes which will invest into the instruments with a maturity range of three to six months.

Low duration fund: These open-ended debt schemes will invest in instruments with a duration of six to 12 months.

Money market funds: These open-ended schemes will invest in money market instruments having maturity of up to one year.

Short duration funds: These open-ended debt schemes are expected to invest in instruments with a duration ranging between one to three years.

Medium duration funds: These open-ended debt schemes will invest in instruments with a duration ranging between three to four years.

Medium to long duration funds: These open-ended debt schemes will invest in instruments with a duration ranging between four years to seven years.

Long duration funds: These open-ended debt schemes will invest in instruments with a duration of more than seven years.

Dynamic bonds: These open-ended debt schemes will invest across durations.

Corporate bond funds: These open-ended debt schemes which will predominantly invest in highest-rated corporate bonds. These schemes are expected to invest at least 80 per cent of total assets in corporate bonds, only in highest-rated instruments.

Credit risk funds: These open-ended debt schemes will have to invest in below highest-rated corporate bonds. And are expected to invest at least 65 per cent of the total assets in corporate bonds.

Banking and PSU funds: These open-ended debt schemes will invest at least 80 per cent of assets in debt instruments of banks, public sector undertakings and public financial institutions predominantly.

Gilt funds: These are open-ended debt schemes will invest in government securities. These schemes are expected to invest minimum 80 per cent of total assets in Government Securities.

Gilt fund with 10-year constant duration: These open-ended debt schemes will be investing in government securities with a constant maturity of 10 years. These schemes are expected to invest at least 80 per cent of their total assets in Government Securities.

Floater funds: These open-ended debt schemes will invest in floating rate instruments. These schemes are expected to invest at least 65 per cent of the total assets in floating rate instruments.