How to choose the right debt mutual fund? Types, risks and rewards explained

livemint.com:

debt mutual funds, don't just keep the money safe, they also lend it out to others, like banks or companies, who promise to give the money back later with a little extra as a thank you, like how you might get a little extra candy when you lend your toys to a friend. So, when you invest in a debt mutual fund, you're basically letting a big piggy bank borrow your money for a while, and in return, they give you a little extra back when you need it, just like how you get a little extra candy when you share your toys! When you invest in a debt mutual fund, you essentially become a part-owner of all the bonds or loans that the fund has invested in. The returns you receive from a debt mutual fund typically come from the interest payments made on these bonds or loans, as well as any capital gains if the value of the bonds increases.

Imagine you have a big jar, and you ask your friends to put some money into it. Now, instead of keeping that money in the jar, you decide to lend it out to others who need it, like your friends who want to borrow some toys. Debt mutual funds work in a similar way.

Lots of people put their money into a big pot called a mutual fund. Then, instead of just sitting there, the mutual fund manager takes that money and lends it out to different borrowers, like companies or governments. These borrowers promise to pay back the money they borrowed, along with a little extra called interest.

That interest is like a "thank you" for letting them borrow the money. When you invest in a debt mutual fund, you're basically lending your money to the mutual fund, which then lends it out to others. In return, you get a share of the interest that the borrowers pay back.