Lesson 35 of 53 · Debt funds · 4 min read · Reviewed 29 Oct 2026
Units of a fund with more than 65% in debt and money-market instruments, bought on or after 1 Apr 2023, are short-term however long you hold them, under section 76 of the Income-tax Act 2025 (50AA of the 1961 Act). The gain is added to your income and taxed at your slab rate, like FD interest, but only when you sell.
Debt funds are grouped by how long their bonds run: overnight, liquid (up to 91 days), money market (up to a year), short term (1–3 years) and longer.
Longer duration means larger price swings when interest rates move. Lower-rated bonds mean more credit risk.
Every debt fund shows a Potential Risk Class: one cell in a 3 × 3 grid of duration and credit risk.
Key idea: Tax is paid only when you sell, unlike FD interest, which is taxed each year as it accrues.
Try the short quiz on this page to check what stuck.
At least 80% in government securities.
At least 65% in bonds rated AA and below.
Units bought before then follow the older rules.
For learning only, not investment advice. Built in India by a team that tracks its own money on Reva.