Debt Funds are a category of Mutual Funds designed to generate returns by loaning your investment to the government and businesses. Ideal for investment periods ranging from 1 day to 3 years, these funds often yield better post-tax returns than Fixed Deposits (FDs) if you invest for a minimum of 3 years. Liquid Debt Funds are particularly suitable for managing emergency funds as they provide higher returns compared to a standard savings account with relatively low risk.