Debt is giving a loan to someone for a specific time at a predefined rate. So, mutual funds which invest in fixed income debt instruments are called Debt Funds. Thus, Debt Funds refer to those mutual funds which invest majorly in debt based or fixed-income securities, like government securities, Treasury Bills, Gilt Funds, corporate bonds, etc.

Debt or Income Funds typically have a 100% exposure in debt. However, hybrid funds with more than 35% exposure in debt instruments also follow debt taxation and can be called Debt Funds, like MIP(Monthly Income Plan).

Usually, Debt Funds have a predetermined maturity date and offer investors fixed interest. Investors of such funds have two sources of earnings:
1.Interest income and ̥
2.Appreciation in capital due to market dynamics.̥