Many in the fraternity, especially the retirees, tend to invest in debt funds, considering them safe.
But are the 'Debt Funds' really safe? And can debt investment give inflation-beating returns?
Answer is:
Have a look at the enclosed data. Wherein you can see that over the last 4 years the returns from debt funds have not only been less than the FDs but lower than even the savings bank account. In addition, any unexpected increase in interest rates can wipe out all the gains, especially for a long-duration fund. Also, incidents of credit risk arising due to the possibility of default on interest and principal payments on the bonds held by the debt fund can wipe out not only gains but also the invested principal amount, like in the case of Franklin, DHFL, ILFS, etc.
Know these key facts about debt funds:
- 'Debt is SAFE is the biggest MISNOMER'
- With the withdrawal of indexation benefits wef 01 Apr'23, the debt funds have lost their tax benefits.
- Don't invest in debt beyond the basic need of portfolio diversification.
- The investment rule to be followed is "Use Debt or FD for storing wealth and Equities for creating wealth."
Happy investing!
But are the 'Debt Funds' really safe? And can debt investment give inflation-beating returns?
Answer is:
'Debt investments are neither safe nor good for growth'. As all the debt funds are exposed to varying amounts of various risks, such as:
1-Interest rate risk
2-Credit/Default risk
3-Concentration risk
4-Liquidity risk
5-Reinvestment risk
1-Interest rate risk
2-Credit/Default risk
3-Concentration risk
4-Liquidity risk
5-Reinvestment risk
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Have a look at the enclosed data. Wherein you can see that over the last 4 years the returns from debt funds have not only been less than the FDs but lower than even the savings bank account. In addition, any unexpected increase in interest rates can wipe out all the gains, especially for a long-duration fund. Also, incidents of credit risk arising due to the possibility of default on interest and principal payments on the bonds held by the debt fund can wipe out not only gains but also the invested principal amount, like in the case of Franklin, DHFL, ILFS, etc.
Know these key facts about debt funds:
- 'Debt is SAFE is the biggest MISNOMER'
- With the withdrawal of indexation benefits wef 01 Apr'23, the debt funds have lost their tax benefits.
- Don't invest in debt beyond the basic need of portfolio diversification.
- The investment rule to be followed is "Use Debt or FD for storing wealth and Equities for creating wealth."
Happy investing!
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