Is it time to start buying debt mutual funds? | Jobs Vox

For a new investor – it is important to start the investment journey with reaching the final destination of achieving the financial goals. Often, financial experts advise investors to invest in equity assets for the higher income potential they offer. However, the right type of portfolio is always different.

Therefore, taking excessive risk to get high returns is a practice that should be avoided – and it is advisable to allocate a portion of the portfolio to fixed income instruments such as debt mutual funds.

Investing universe

In the year In the year In the year In the year In the year In the year In the year In the year In the year On November 30, 311 debt mutual fund schemes saw a lot of inflows 3,668 crores in the month. The net assets under management for these schemes stand here 12.56 lakh crore.

In October, however, there were 318 plans with a net flow 2,817 crore and net assets under management (AUM) of 12.44 lakh crore.

month Number of debt plans log in ( crore) AUM ( crore)
October 318 (-) 2,817 12.44 lakh
November 311 3,668 12.56 lakhs

Why should you invest?

Debt funds are a viable option for investors who want the safety of fixed deposits but relatively high returns.

Also Read: Should You Use Debt Funds As A Fixed Deposit Alternative? We will explain

A debt fund is a mutual fund scheme that invests in fixed income instruments such as corporate and government bonds, corporate debt securities and money market instruments etc. that offer capital appreciation. They are also known as fixed income funds or bond funds.

They have a low cost structure, offer relatively stable returns, high liquidity and reasonable security. These funds are good for risk-averse investors looking for regular income. They are less volatile and riskier than equity funds.

So for those investors who invest in traditional fixed income products like FDs and want steady returns with less volatility, debt mutual funds can be a better option.

The effect of interest rates

As interest rates rise, bond funds earn less. When interest rates rise, the price of long-term bonds will fall to allow yields to match the increased interest rates.

Conversely, when interest rates fall, bonds with higher coupon rates become more desirable and their prices rise to match the lower interest rates.

Now that things seem to be stabilizing in terms of inflation, interest rates cannot go much higher than they are now.

In fact, we reported that short-term bonds are creating a strong correlation with investors as there is now a strong possibility that the RBI may pause the interest rate after it increased by a whopping 225 basis points across the five monetary policy committees.

Quantum Asset Management and Tata Asset Management are said to be buying debt with maturities of up to five years.

As stated above — it is important to invest in debt funds to make your portfolio strong, flexible and most importantly – diversified.


We explain what short term debt funds are

First published: December 24, 2022, 11:10 am IST

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