Investors- Look at  Debt Funds as an option for Fixed Income and Risk free Returns.



 Investors of various kinds- young and old, Literate- illiterate, Employed or otherwise, Housewives-Corporate women and many more. Some of them are aware of the investment characteristics in stock markets but many are averse to it. The risk-appetite naturally varies from one segment to another. So for people, who are not prepared to assume risk in their investments, may always be after Fixed Income with the least risk possibilities. For them the debt funds are a natural option which becomes handy.

With 16 debt fund categories and 330 individual debt funds (excluding fixed maturity plans) to choose from, finding the best debt fund for generating optimal risk -adjusted returns can be trickier vis a vis Equity investment funds. Herein find some tips for selecting debt funds.

  1. Identify your risk appetite and risk horizon. Sebi’s recent  circular on MFs categorization is an excellent tool  as it categorizes debt funds on the basis of risk rating, residual maturity and portfolio constituents of the funds .Example: Corporate debt funds as per the circular have to invest 80 % of their corpus in highest rated corporate bonds with good rating.
  2. Average maturity (weighted average) of debt instruments is to be ascertained and this will help in times of changing interest rates.
  3. Consider Expenses ratio of each such fund. Here choosing direct plans of debt funds would be better as lower expenses ratio is beneficial to the investors with better yield.
  4. Next YTM- Yield to Maturity- of a debt fund will enable us to invest in high yield securities with low risk.
  5. Debt instruments with credit rating of AAA denote lowest credit risk while C, B have risks.
  6. Price of debt securities increases during falling interest rate regime as the coupon rate tends to go higher than the ones offered by newly issued debt instruments.

So investors who want risk- free returns, may park their substantial amount in highly rated Fixed Income debt funds to improve their cash-flows.

For all investment advice, feel free to reach your Investment Expert- Goodwill !

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