Debt market and debt instruments are less understood opportunities by individual investors who do not understand anything beyond bank deposits, government bonds and post office savings instruments. It is not anybody’s fault but the fault is in our education system that does not endeavour at all to teach anyone about financial markets and instruments at the school or college level.

There are several opportunities beyond bank and post office instruments such as Call Money, T-Bills, Certificate of Deposits, Commercial Papers, CBLO, G-Sec and rated corporate bonds that are very actively issued and subscribed and the volume runs into several thousand crores on a daily basis. The returns offered by these instruments are comparatively (by and large) higher than the normal bank deposit rate of return.

The insurance premiums that we pay and the employee provident fund amount that gets deducted each month from the salaries do get religiously invested in these instruments invested by the respective insurance companies and provident fund treasuries. But for a common individual this market segment still remains to be inaccessible.

To facilitate all types of individuals to participate (indirectly) in this fixed income market or debt market a common intermediary was institutionalized by way of Mutual Funds who are authorized to mobilize funds from small investors at as low as Rs.5000 per investor and invest in these markets and instruments. Mutual funds mobilize funds from investors who cannot access these markets directly and invest or subscribe to these issues in the debt segment of the capital market and manage them actively and endeavour to offer superior returns compared to traditional deposits.

Those investors who seek to preserve their capital and also seek slightly higher returns compared to a fixed deposit can explore investing in debt mutual funds that are designed to meet such expectations of low risk (but remember that a debt fund may not be completely risk-free).Now let’s see how to choose a debt fund to invest for those who would like to seek income generation with low risk on their principal amount.

Your choice of debt mutual fund should ideally depend on your investing period; for example: if you can stay invested for one week, one month, three months, six months, one year and so on. Once you are clear of this time horizon choosing the appropriate debt mutual fund becomes easier. The below table would offer an illustrative and indicative selection tips: