Lesson 2 of 3 · 8 min
What the category name commits a fund to
Debt schemes sit in seventeen defined categories, and the name is not marketing. Each one binds the fund to a stated duration band or a stated credit floor.
The regulator defines each debt scheme category and what a fund in it may hold. That makes the category name usable in a way a fund's own marketing name is not: if a scheme is in a category, it is committed to that category's definition. Reading the category is how you find out what a fund is allowed to do before you read anything it says about itself.
| Category | What the definition binds it to |
|---|---|
| Overnight Fund | Securities maturing in one day |
| Liquid Fund | Maturity up to 91 calendar days |
| Ultra Short Term Fund | Macaulay duration 3 to 6 months |
| Ultra Short to Short Term Fund | Macaulay duration 6 to 12 months |
| Money Market Fund | Money market instruments maturing within 1 year |
| Short Term Fund | Macaulay duration 1 to 3 years |
| Medium Term Fund | Macaulay duration 3 to 4 years |
| Medium to Long Term Fund | Macaulay duration 4 to 7 years |
| Long Term Fund | Macaulay duration greater than 7 years |
| Dynamic Term Fund | Invests across duration — no band at all |
Then there are the categories defined by who the borrowers are rather than by how long the money is lent. A Corporate Bond Fund must hold at least 80% of assets in corporate bonds rated AA+ and above. A Credit Risk Fund must hold at least 65% in corporate bonds rated AA and below. Those two names describe opposite ends of the same axis, and only one of them says so out loud.
| Category | What the definition binds it to |
|---|---|
| Corporate Bond Fund | At least 80% in corporate bonds rated AA+ and above |
| Credit Risk Fund | At least 65% in corporate bonds rated AA and below |
| Banking and PSU Debt Fund | At least 80% in debt of banks, PSUs, public financial institutions and municipal bonds |
| Gilt Fund | At least 80% in government securities, across maturities |
| 10 year Constant Maturity Gilt Fund | At least 80% in government securities, duration held at 10 years |
| Floating Interest Rates Fund | At least 65% in floating-rate instruments |
| Sectoral Fund | At least 80% in one named sector, in AA+ and above rated corporate bonds |
Match them up
Name to definition
Match each category to what it commits the fund to.
Pick a term on the left.
Then why do two funds in one category behave differently?
KabirTara
Kabirasking
If the category pins the duration, shouldn't every Short Term Fund do the same thing?
Taraexplaining
It pins one thing. A Short Term Fund has to keep duration between one and three years — it says nothing about whose bonds those are. Two funds can both obey it and hold completely different credit quality.
Kabirasking
So the category is only half the picture.
Taraexplaining
Half, and the half it covers depends on which category. The duration ones pin duration and leave credit open. The credit ones pin credit and leave duration open. The next lesson is about the box that shows both at once.
Check yourself
1 / 3
Kabir asks
What does the Liquid Fund definition bind a fund to?
Done reading?
Saved in this browser.