Investor Corner/The asset classes/Mutual Fund Categories
2.4.3 Other Debt Categories
Beyond the duration-based ladder, debt funds are also categorised by what they invest in: corporate bonds, credit risk, banking and PSU debt, gilts, or a dynamic mix that shifts based on the manager's view.
Categories built around what is held, not just when it matures
A corporate bond fund must primarily hold high-quality corporate bonds. A credit risk fund deliberately takes on lower-rated, higher-yielding corporate debt in pursuit of extra return. A banking and PSU fund concentrates on debt issued by banks and public sector undertakings, generally considered relatively stable issuers. A gilt fund holds only government securities.
Dynamic and target maturity structures
A dynamic bond fund gives the manager freedom to actively shift duration based on their own interest-rate outlook, taking on the added risk that this active call could turn out wrong. A target maturity fund does the opposite, holding a defined basket of bonds that all mature around a specific future date, giving investors a fairly predictable, bond-like outcome if held to that date.
Reading the category name carefully
These category names describe genuinely different risk profiles, even among funds nominally in the same broad duration bracket. A credit risk fund and a gilt fund can carry similar interest-rate exposure while carrying very different levels of default risk, which is exactly the kind of distinction the category label is designed to surface.
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