Be Alert !!! While Investing In DEBT MFs

Debt mutual funds, which were considered to be a safer investment, are rocked by some back to back bad events in the corporate sector. This has led investors to re-think on investing in debt mutual funds. DSIJ explains how to check this warning signal before investing in debt MFs.

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It is very sad to find that debt mutual funds, which were considered to be a safe option when compared with equity mutual funds, are losing their coveted position. Thanks to some of the back-to-back events that have raised questions over the debt fund’s performance. After the last year’s IL&FS fiasco, recently the incidents of Essel and DHFL (Dewan Housing Finance Ltd.) defaulting on their payments resulted in the downgrading of papers (debt instruments) issued by them by the rating agencies. The debt mutual funds having high exposure in their papers were adversely impacted.

The debt mutual funds that held debt securities of Essel and DHFL amounted to around 7,524 crore and 7,041 crore, respectively, at the end of December 2018. These papers formed around one percent of the total debt AUM during the same period. Hence, the defaults may not destabilize the entire debt category. Still, the debt mutual fund retains its status of being one of the safest avenues of investment, but investors need to be cautious and carry their own due diligence before investing in debt mutual funds.

High Concentration In One Issuer