A debt fund invests in fixed-income instruments. These may include Commercial Paper, Certificates of Deposit, bonds & debentures.  Though the rate of interest on these instruments remains the same all through their tenure, the market value keeps changing, depending on how the interest rates in the economy move.

NAV of a debt fund is the market value of its portfolio holdings at any given point of time. Even though debt funds are fixed-income havens, they don’t offer guaranteed returns. The Net Asset Value (NAV) of a debt fund tends to fall with a rise in the overall interest rates in the economy. Hence, they are suitable for a falling interest rate regime. Thus the NAV of a debt fund can fall too.