NOT QUITE RISK-FREE

Debt funds may seem deceptively like FDs, but are certainly not as safe

- Naveen Kumar

Of late, debt funds had become an alternative investment option to fixed deposits for many. While the going was good, investors gained from high returns from debt funds and did not have to bother about underlying risks. But the closure of six debt funds by Franklin Templeton came as a shock to many. Defaults by debt-issuing corporates, the most recent spree having started with IL&FS, have become more common these day. “Conservative investors often go for debt funds thinking they are safe but, like equity funds, debt funds too come with a degree of risk depending on the type of scheme or investing strategy of the fund manager,” says Pranjal Kamra, CEO, Finology.

Caution is key if you plan to invest in debt funds. “One should keep their investment horizon in mind. For example, if you want to park money for a few weeks, don’t pick a short-duration debt fund,” says Abhinav Angirish, founder, InvestOnline.in. Here are some risks to consider.

CREDIT RISK