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Long-term debt funds invest in corporate bonds and Government of India bonds that have a long-term maturity period. Long-term income funds usually benefit when the interest rates are moving downwards. However, they are highly vulnerable to changes in interest rates and are suitable for investors who have long-term investment plans and likely to take high risks.

Interest rates and prices of the debt instruments have an inverse relationship. This means they move in opposite directions. For example, a falling interest rate is good for debt mutual funds. When interest rates fall, the bond prices go up and it will boost NAVs of the debt mutual fund schemes. The risk of losing the capital and the interest on the investment is credit risk. Instruments with the lowest credit rating will have the highest credit default risk and will certainly give higher yields