Do You Really Need Debt Funds In Your Portfolio?
Dalal Street Investment Journal|May 10, 2021
Although an all-equity portfolio may look tantalising for its possibility of creating wealth, investors must also take into consideration the risk and return probability. As such, adding debt to your portfolio could give it the right balance and security, as a study conducted by DSIJ proves

After registering a low in March 2020, the equity market has not looked back. Not just that, the performance of the market has been quite stunning. Nifty 50 Total Returns Index (TRI) registered a low of 10,710 on March 23, 2020 and as on April 23, 2021 it was 20,392. In this period, Nifty 50 TRI generated 64 per cent of annualised returns. This can very well be seen in the graph presented alongside.

According to the Securities and Exchange Board of India (SEBI) data, new dematerialisation accounts between April 2020 and January 2021 surged to an all-time high of 1.07 crore. Experts believe that smooth and easy access to stock markets due to technology has led to such a rise. Definitely, this can also be very well-attributed to the rally that the equity market provided in this period. In fact, this rally has also led mutual fund investors to exit from mutual funds to invest directly into stock markets. This has left many wondering as to whether at all one needs debt mutual funds. In this article we would be carrying out a study wherein we would try to answer this question.

The major problem with investors is their perception about the equity market. Most investors often treat the equity market as an easy money minting machine. In fact, these days we can also see a lot of share market trading classes as well. But the true fact is that most of these classes vanish during the bear run. Therefore, it is always better to have the correct perception about any instrument you are investing in. The equity market tends to reward those investors who understand the inherent risks associated with it and still remain invested.

While designing an investment portfolio, an investor might have either one or a combination of the below mentioned three core objectives:

1. Protect capital

2. Provide regular income

3. Create wealth.

However, while constructing an investment portfolio, some may opt for an all-equity portfolio in order to achieve their financial goals. Some might even have higher exposure to focused funds, sectoral funds or even thematic funds. However, we believe that asset allocation between equity and debt is the ideal way one should approach portfolio construction. This is because it can help you strike a perfect balance between safety and growth.

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