Money market funds invest in short-term debt instruments such as treasury bills, certificates of deposit, commercial paper, and government securities. In addition, the risk is minimal because these bonds are issued by the government, which is less likely to default on these bonds. The returns are not huge, but there is a safety net of minimal risk because these bonds have high credit ratings. Thus, a debt mutual fund provides stability to the portfolio during a volatile market as the government bonds, and debt securities have lower risks with stable returns compared to the equity market.Īn overnight fund invests your money in Treasury bills, which are government-backed debt bonds that typically expire in a day and pay a nominal interest rate. Debt funds could be valuable to your portfolio during a recession or a volatile market situation as these assets are considered less volatile than equity. A debt mutual fund invests money in debt-based instruments like government bonds, sovereign bonds, and fixed-income securities.
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