Short-term debt funds in India are attracting big inflows amid uncertainties over the central bank’s future policy stance. The Indian debt market, one of the largest in Asia is developing rapidly buoyed by a multitude of factors including new instruments such as increased liquidity, deregulation of interest rates and improved settlement systems. The major players in the Indian debt markets today are banks, financial institutions, insurance companies, FIIs and mutual funds. Shorter-tenor debt is expected to provide flexibility to investors amid policy uncertainty as it prevents them from getting locked in for a longer duration. The risks associated with any investments are - credit risk, interest rate risk, settlement risk and liquidity risk. Interest rate risk is present in all debt securities and depends on a variety of macroeconomic factors. The largest segment of the Indian Debt market consists of the Government of India securities where the daily trading volume is more than Rs. 10,000 crore, with instrument tenors ranging from short dated Treasury Bills to long dated securities extending up to 30 years.

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