The emergence of the pandemic in 2020 proved to be extremely dramatic, if not chaotic, for the debt markets. It all started when Franklin Templeton closed six yield-oriented debt mutual funds. Investors were risk-apprehensive as a result of this, resulting in enormous withdrawals from credit risk funds. The Reserve Bank of India (RBI) then injected liquidity and aggressively lowered interest rates to counteract the pandemic caused slowdown, and long-duration and gilt funds revelled in the festivities. Rising bond rates have recently resulted in mark-to-market losses in debt funds.
Changing tactics to benefit from the debt markets heightened the outcry. You may have come across lingo such as barbell strategy, carry, roll-down strategy, and so on. Investing in dynamic bonds to ride out a variable interest rate scenario became popular last year. Investing in target maturity funds appears to have been the rage recently. All of this has certainly perplexed the common debt investor, who just seeks capital security and somewhat better yields than bank deposits. We want to simplify things for you and give you what you need to know through this article.
One thing is evident from the start: as an investor, you should not have to adjust your plan in response to changing market conditions. This is particularly true for debt fund investors.
Whether you invest in stock or debt funds, your investing plan should be able to withstand market ups and downs. Debt mutual funds have come a long way since November 2012 when their assets under management (AUM) stood at ₹5.7 lakh crore. As of November 2022, it manages assets of ₹12.79 lakh crore, a rise of 124 per cent over the previous 10 years. However, it has been declining since March 2020.
Furthermore, debt mutual funds have underperformed on a year-to-date (YTD) basis. The median YTD returns of nine debt fund categories are less than the savings bank interest rate.
This story is from the December 19, 2022 edition of Dalal Street Investment Journal.
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This story is from the December 19, 2022 edition of Dalal Street Investment Journal.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
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