Every term the planner uses, defined once. Nothing here is a recommendation.
A fund that lends, instead of buying ownership.
A debt mutual fund pools money and lends it out by buying bonds — government securities, treasury bills, corporate bonds, certificates of deposit. You earn the interest those bonds pay. Because bond prices move when interest rates move, the fund's NAV can wobble slightly, but far less than equity.
Watch for: The longer the bonds it holds, the more the NAV moves when rates change. Match the fund's duration to your holding period.
The parking lot.
Overnight funds hold paper maturing the next day. Liquid funds hold paper maturing within 91 days. Practically no interest-rate risk, redemption usually credited in T+1. This is where an emergency fund or an idle lump sum sits.
Watch for: Returns roughly track the RBI repo rate. You are buying safety and access, not yield.
One notch up from liquid, for a few months.
Money market funds hold instruments maturing within a year; ultra short duration funds run a 3–6 month Macaulay duration. Slightly better accrual than liquid with only a little more sensitivity to rates.
Watch for: Not a substitute for a liquid fund if you might need the money next week.
The workhorse for 1–3 year goals.
Low duration funds run 6–12 months of duration; short duration funds run 1–3 years. They hold a mix of high-grade corporate bonds and government paper, and earn mostly through accrual — the interest the bonds pay — rather than betting on rate moves.
Watch for: Check the credit profile. A high headline return usually means lower-rated paper in the portfolio.
At least 80% in the highest-rated company bonds.
SEBI requires a corporate bond fund to hold a minimum of 80% in AA+ and above rated corporate bonds. In practice the good ones sit almost entirely in AAA. Suits 2–4 year horizons where you want accrual above a bank deposit without credit adventures.
Watch for: Corporate bond fund ≠ credit risk fund. A credit risk fund deliberately buys lower-rated paper. We do not recommend those here.
Sovereign paper — zero credit risk, real rate risk.
Gilt funds hold only government securities, so the borrower is the Government of India and default risk is effectively nil. Target maturity funds hold G-secs, SDLs or PSU bonds that all mature around a fixed date, so if you hold to that date your outcome is far more predictable.
Watch for: Gilt NAVs swing with interest rates. A target maturity fund whose maturity date matches your goal date largely neutralises that.
A closed-ended bond ladder with a fixed end date.
An FMP buys bonds that mature around the plan's own maturity date and holds them to term. Because there is no reinvestment in between, the outcome is far more predictable than an open-ended fund — closest thing in mutual funds to a fixed deposit.
Watch for: Closed-ended. Your money is locked until maturity; exchange listing exists but is thinly traded. Only choose this if you are certain about the date.
A newer, sophisticated-investor category.
SIFs are a SEBI category sitting between mutual funds and PMS, allowing strategies (including long-short debt) not permitted in a standard scheme. Minimum investment is ₹10 lakh across the fund house.
Watch for: Out of scope for a first-time debt investor. Listed here so you know what the term means.
Open the scheme's monthly factsheet. Every number below is on it. If a fund fails these, it does not matter how good last year's return looked.
Start with these two
Modified duration
How much the NAV moves for a 1% change in interest rates. A duration of 2 means roughly a 2% NAV move. This is the single number that tells you whether a fund matches your holding period.
What good looks like: Keep it at or below the number of years you plan to stay invested. Longer than your horizon means you may be forced to sell into a dip.
YTM versus the category average
Yield to maturity is what the portfolio earns if every bond is held to maturity. Compared against the category average, it doubles as a risk gauge — extra yield is never free.
What good looks like: Match the category, or sit slightly below it. A fund yielding 2% above its category is buying that gap with weaker credit or longer duration.
Then confirm these five
The split of the portfolio across sovereign, AAA, AA+ and below. Ratings can also be cut while you hold — a downgrade hurts the NAV even if nobody actually defaults.
What good looks like: For everything in this planner: sovereign, AAA and AA+ only. Anything below is a credit risk fund, whatever it calls itself.
How much sits in the single largest non-government issuer. A great average rating can still hide one oversized bet on one company.
What good looks like: No single corporate issuer above roughly 5% of the portfolio. Large sovereign holdings are fine — the government is not going to default.
Very small funds cannot negotiate good rates and are price takers. Very large funds struggle to sell bonds quickly if many investors redeem at once.
What good looks like: Prefer the middle of the category — usually a few thousand crore. Be wary at both extremes.
How many separate bonds the fund holds. Read it alongside AUM: if both are shrinking month over month, investors are leaving and the manager is selling whatever will sell.
What good looks like: Rising or stable. Falling AUM plus a falling security count together is a liquidity red flag — that combination is your exit signal.
On a fund earning 7%, half a percent of expenses is a seventh of your return. Exit loads on short-duration products can quietly erase weeks of gains.
What good looks like: Direct plan, lowest expense ratio in the category. Check the exit load period is shorter than your holding period.
Indicative category bands, dated snapshot as of August 2026.
Liquid fund
Money you may need at short notice should not carry duration risk. A liquid fund holds paper maturing within 91 days and pays out in T+1.
Rolling returns: 3 months 6.0% – 7.0% · 1 year 6.4% – 7.3%
Money market fund
If the date is 6–12 months away rather than 'any day now', money market paper earns a little more for a small step up in sensitivity.
Rolling returns: 6 months 6.3% – 7.2% · 1 year 6.8% – 7.6%
Low duration fund
A 6–12 month duration book earns accrual comfortably above a liquid fund while keeping NAV movement small over a one to two year hold.
Rolling returns: 1 year 6.8% – 7.8% · 2 years 6.9% – 7.7%
Short duration fund
At the two-year mark a 1–3 year duration book has enough runway to ride out a rate move and still deliver its accrual.
Rolling returns: 1 year 6.7% – 8.1% · 2 years 7.0% – 7.9%
Corporate bond fund
Three years lets a predominantly AAA corporate book run its full accrual. Highest-grade credit only — no credit risk funds.
Rolling returns: 1 year 6.9% – 8.4% · 3 years 7.0% – 8.0%
Short duration fund
A steadier alternative if you would rather keep duration tight and accept a slightly lower band.
Rolling returns: 2 years 7.0% – 7.9% · 3 years 6.9% – 7.8%
Target maturity fund (G-Sec / SDL)
Pick a maturity date on or just before your goal date and the outcome becomes close to predictable, with sovereign-level credit safety.
Rolling returns: 3 years 6.9% – 8.2% · 4 years 7.0% – 8.1%
Corporate bond fund
If you want liquidity rather than a fixed date, an AAA-dominant corporate book remains the cleanest accrual option at four years.
Rolling returns: 3 years 7.0% – 8.0% · 4 years 7.0% – 8.0%
Banking & PSU / corporate bond fund
Five years is the sweet spot for a high-grade accrual book: bank, PSU and AAA corporate paper, held through a full rate cycle.
Rolling returns: 3 years 7.0% – 8.1% · 5 years 6.8% – 7.9%
Gilt fund
Zero credit risk and a genuine upside if rates fall. Only appropriate because five years gives NAV swings time to resolve.
Rolling returns: 3 years 6.6% – 9.2% · 5 years 6.5% – 8.6%
Banking & PSU / corporate bond fund
For a monthly or quarterly withdrawal the capital has to stay steady and available every single day. A high-grade bank, PSU and AAA corporate accrual book is the standard choice: open-ended, redeemable any day, and no credit risk taken to reach for yield.
Rolling returns: 3 years 7.0% – 8.1% · 5 years 6.8% – 7.9%
Short duration fund
Pair it with, or use instead of, the accrual book if you want the NAV to move as little as possible between withdrawals. A tighter duration means a smaller wobble on the day you redeem.
Rolling returns: 1 year 6.7% – 8.1% · 3 years 6.9% – 7.8%
Enchant Wealth Hub is an educational service. Nothing here is investment advice or a recommendation to buy any specific scheme. Scheme names are illustrative examples of the category only. Return ranges are indicative historical category bands, not guarantees. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Debt fund gains are taxed at your slab rate for units bought on or after 1 April 2023.
