Debt funds are divided into different categories based mainly on investment horizon, maturity and credit exposure. Shweta Rajani, Mutual Fund Head, Anand Rathi Wealth, explains that investors can choose from categories such as overnight, liquid, ultra-short duration, low duration, money market, short-term, medium duration and long-duration funds. Gilt funds invest entirely in government securities, while banking and PSU, corporate bond and credit risk funds have different levels of credit exposure. The key is to match the fund category with your investment horizon and ability to take credit risk. Understanding these differences can help investors select a debt fund that better suits their financial requirements and goals.