A debt instrument is issued at a fixed coupon which varies on the market condition at the issue time and is paid on a regular basis until maturity. When there is a fall in interest rate, the debt securities value gains, resulting in mark-to-market gains. The opposite happens when the rate of interest goes up, the value of debt security go down, making mark-to-market loss.
Mutual fund deals in Debt instruments have to record some gain or loss on their holding of debt, even if the loss or gain is not realised. This is called Mark-to-Market risk or MTM.