If you are looking for moderate growth of capital with virtually no risk, investing in debt funds is best for you.

Debt mutual funds invest your money in fixed income investments like short/long term bonds, securitized products, floating rate corporate debts etc. This type of funds are virtually risk free and yields average returns around 8% - 12%. This makes debt funds a better investment option compared to fixed deposits because of higher rate of returns and freedom to withdraw your money whenever you want.

Interest rates and NAV of debt funds move in opposite directions. This means that falling interest rates are good for debt funds. When interest rates fall, the bond prices go up and it boosts the NAV of debt mutual funds.