Invest In Quality Debt Funds

The equity investors were at the receiving end of the volatility most of the time. However, in the last nine months, investors of debt funds are facing the brunt of bouts of volatility. After a series of liquidity crises hitting the debt market in the last few months, investors are getting jittery about their debt fund portfolio. The downgrading of these companies' paper by rating agencies has only added fuel to the fire. This has led to many investors selling their debt investments. Is it really that bad a situation?

The silver lining of these crises is that now investors know that debt funds are not as safe as they were perceived to be. Though they are less risky than equity funds, there are risks such as liquidity risk, credit risk and interest rate risk that go with debt funds. Before taking any decision regarding your debt fund, you should critically analyse your debt portfolio and check their total exposure in these troubled companies. It may be possible that the funds where you have invested have negligible exposure to these companies. Moreover, if we go through the latest development, barring a couple of companies, all other companies are on the right track to course correction. Therefore, the earlier estimation of the damage to the portfolios of the funds holding papers of these companies may prove to be exaggerated.

Besides, if we analyse last one-year returns, the debt funds have remained one of the best performers, beating even the equity funds' returns. Going ahead, with a fall in crude oil price, slowdown in growth and rate cut by the apex bank, we may see debt funds keeping up with their performance.

Hence, as an investor, the recent developments should not deter you from investing in quality debt funds. The choice of these funds will depend upon your risk appetite and investment objectives.

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