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A beginner’s guide to mutual funds - 3

Overnight FundsGetty Images
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Overnight Funds
These schemes invest in overnight securities with a maturity of one day. These schemes are ideal for investors who have a very short term investment horizon and want to take very low risk.
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Liquid Funds
They invest in highly liquid money market instruments with maturity up to 91 days. Investors can park their money in them for a few days to few months. These funds may offer marginally higher returns than bank deposits. Liquid funds have graded exit loads for withdrawals before seven days.
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Ultra Short Duration Funds
Ultra Short Duration Funds: These schemes invest in fixed income instruments with a maturity between three to six months. Investors can park their money for a few months to a year in them. Ultra short duration funds are least impacted by the interest rate movement in the system.
Low Duration FundsGetty Images
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Low Duration Funds
These are open-ended schemes that invest in debt and money market securities with macaulay duration between six to 12 months. These schemes are ideal for investors who want to park their money for at least one year.
Money Market FundsGetty Images
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Money Market Funds
These schemes invest in money market instruments with maturity of up to one year. These schemes invest in high-quality money market instruments. It provides investors with a reasonable return along with good liquidity.
Short Duration FundsGetty Images
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Short Duration Funds
Short duration funds are open-ended debt schemes that invest in instruments with macaulay duration of between one and three years. These schemes are impacted by the interest rate movement in the system. They are suitable to invest with an investment horizon of a few years.
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Medium Duration Funds
They are open ended medium term debt schemes that invest in debt and money market securities between three to four years. These schemes are more susceptible to interest rate movement and riskier than short duration funds. Investors with an investment horizon of at least three to four years can invest in these schemes.
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Medium to Long Duration Funds
Medium to Long Duration Funds: These debt mutual fund schemes invest in debt and money market instruments with macaulay duration between four to seven years. These are ideal for investors with a long term investment horizon and who can take extra risk for returns.
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Long Duration Funds
These schemes invest in debt instruments with macaulay duration of more than seven years. These schemes are extremely sensitive to interest rate changes. When the interest rate goes up, the returns from these schemes are hit badly. They can give high returns in a falling rate scenario. Investors with higher risk appetite and longer investment horizon can opt for them.
Dynamic Bond FundsGetty Images
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Dynamic Bond Funds
These are debt schemes that invest across duration. The fund manager in these schemes has the freedom to switch durations according to his/her view on the interest rate movement. If the call goes wrong, these schemes can be hit badly and vice-versa. They are ideal for investors who want to leave the job of taking a call on interest rates to the fund manager
Corporate Bond FundsGetty Images
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Corporate Bond Funds
As per the mandate, these schemes have to invest minimum 80 % of their assets in the highest rated corporate bonds. These schemes are considered safer as they predominantly invest in the highest rated corporate bonds.
Credit Risk FundsGetty Images
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Credit Risk Funds
These debt schemes invest in below highest rated corporate bonds. Credit risk funds invest minimum 65% of their total assets in lower than AA-rated papers. These schemes are considered risky as the instruments are more likely to default than highest rated papers. However, these schemes can generate higher returns also.
Gilt FundsGetty Images
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Gilt Funds
These schemes invest 80% of the total assets in government securities across maturity. These schemes do not carry default risk since they invest in securities backed by the government.
Gilt Fund with 10 year constant durationGetty Images
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Gilt Fund with 10 year constant duration
These schemes invest in government securities having a constant maturity of 10 years. These schemes are highly susceptible to interest rate movement because of a higher duration in their portfolio. These schemes can give higher returns when the rates are easing.
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Floater Funds
Floater funds are open-ended debt schemes that invest 65% of their total assets in floating rate instruments. These schemes take advantage of the fluctuation in interest rates to generate quality returns for investors.

Also read:
A beginner’s guide to mutual funds - 1

A beginner’s guide to mutual funds - 2
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