What are the different types of debt instruments?

The different debt instruments are bonds, debentures, certificates of deposit, debt mutual funds, mortgages, commercial papers, and so on.

Bonds: An investor invests money in a corporate or government bond in lieu of a fixed rate of return. Government bonds are quite popular and safe, and the rate of interest can be fixed or floating.

Debentures: Debentures are issued by companies to raise funds by borrowing money from the public. The company promises to pay fixed interest to the investors. Debenture holders do not have any voting rights, but their payment is given more priority over stock dividends.

Certificates of Deposit (CDs): Certificates of Deposit are almost equivalent to bank savings accounts and are risk-free. It’s a kind of short-term debt instrument.

Debt mutual fund: It is also called a fixed-income fund. There is a wide range of schemes under this fund. Among them are ultra-short-duration funds, liquid funds, overnight funds, corporate bond funds, and so on.