You don’t need equity exposure to earn better-than-FD returns.

A business owner once said:

Another asked:

Yes—but only if you pick the right type based on your timeline and comfort.

Debt mutual funds offer a smart, flexible way for businesses to earn passive returns on idle cash. But choosing blindly can lead to mismatch and stress.

Here’s a simple breakdown of the most useful types of debt funds every business owner should know.

1. Liquid Funds – For Short-Term Parking (1–3 Months)

✅ Invest in: Treasury bills, commercial papers, call money

✅ Return Range (2025): ~6–6.75%

✅ Liquidity: High (T+1 redemption)

✅ Risk: Low

Best for:

• Temporary surplus

• Advance tax reserves

• Vendor payment buffers

• Corporate salary float

💡 Tip: Use instead of keeping money idle in savings or current account.

2. Ultra Short Duration Funds – For 3–6 Months Horizon

✅ Invest in: Debt papers with 3–6 month maturity

✅ Return Range: ~6.5–7%

✅ Liquidity: T+1

✅ Risk: Low to Moderate

Best for:

• Upcoming GST/tax payouts

• Short working capital cycles

• Deferred purchase planning

💡 Slightly better yield than liquid funds, with manageable volatility.

3. Money Market Funds – For 6–12 Months

✅ Invest in: High-quality instruments with up to 1-year maturity

✅ Return Range: ~6.5–7.2%

✅ Liquidity: T+1

✅ Risk: Low

Best for:

• Year-end surplus

• Provisioned bonuses or dividend payouts

• Parking capital while waiting on a business decision

💡 More stable than short-term FDs, with comparable or better post-tax returns.

4. Short Duration Funds – For 1–3 Years

✅ Invest in: Bonds with average maturity of 1–3 years

✅ Return Range: ~6.75–7.5%

✅ Liquidity: T+2

✅ Risk: Moderate

Best for:

• Planned capital expenditure in the medium term

• Strategic reserve fund

• Down payment planning (property, machinery)

💡 Good middle-ground between stability and return—ideal for 2-year idle cash.

5. Corporate Bond Funds – For Yield with Low Credit Risk

✅ Invest in: Highly rated corporate debt (AA+ and above)

✅ Return Range: ~7–7.5%

✅ Liquidity: T+2

✅ Risk: Moderate (less than credit risk funds)

Best for:

• Businesses looking for fixed-income alternatives

• Conservative wealth-building for long-term use

💡 Avoid funds holding low-rated or opaque instruments. Check credit quality on fact sheet.

6. Banking & PSU Debt Funds – For Conservative Stability

✅ Invest in: Bonds issued by public sector companies and large banks

✅ Return Range: ~6.8–7.3%

✅ Liquidity: T+2

✅ Risk: Moderate

Best for:

• Businesses seeking steady returns with higher trust factor

• Founders wary of credit default risk

💡 Suitable for a “core” allocation of long-term business surplus.

7. Target Maturity Funds (TMFs) – For Fixed Horizon Clarity

✅ Invest in: G-Secs or PSU bonds that mature in a defined year (e.g., 2027, 2030)

✅ Return Range: Locked-in YTM ~7–7.3%

✅ Liquidity: tradable, but best held till maturity

✅ Risk: Low credit risk, some interest rate risk

Best for:

• Long-term business corpus

• Fixed timeline goals (equipment replacement, buyout planning)

💡 Works like a bond, wrapped in a fund—great for disciplined investors.

What to Avoid (as a Business Entity):

🚫 Credit Risk Funds

→ Chasing high yield with lower-rated instruments

🚫 Long Duration Gilt Funds

→ Very interest-rate sensitive, not ideal for corporate treasury

🚫 Unrated/Illiquid debt funds

→ Liquidity risk, hard to exit during stress

How to Choose the Right Fund (Simple Rule)

Always cross-check:

• Fund category

• Portfolio credit quality

• Exit load

• Fund size and manager reputation

TL;DR – Too Long; Didn’t Read

• Debt mutual funds can offer better returns than FDs—with flexibility and low risk.

• Choose based on how long you can keep the money invested.

• Match surplus duration with fund type: Liquid (<3m), Ultra Short (3–6m), Money Market (6–12m), Short Duration (1–3y), TMFs or Corporate Bonds (3–5y).

• Avoid risky debt funds unless you fully understand the exposure.

• Use funds to turn business cash into a strategic asset—not idle capital.

Your business doesn’t just need to earn—it needs to hold earnings smartly.

Debt funds, when chosen right, let your money rest without rusting.