Debt Mutual funds invest in fixed-income instruments like bonds, but that doesn't mean they are immune to ups and downs. Debt funds are a type of mutual funds that generate returns by investing in bonds or deposits of various kinds. This means that they lend money and earn interest on it. The interest that they earn determines the basis for the returns that they generate for investors. A bond is like a certificate of deposit that is issued by the borrower to the lender. Even individual investors do something similar when they do something as simple as make a fixed deposit in a bank. When you make an FD with a bank, you are basically lending money to the bank. One, they are able to invest in many types of bonds that are not available to individuals. For example, the Government of India issues bonds. It is in fact, by far the largest borrower (and thus bond-issuer) in the country. Individuals cannot buy government bonds. Bonds are also issued by many large and medium sized