Debt Fund Selection

Earlier investing in mutual funds meant significant investments in equities

, however the current market scenario has driven investors to relocate their invested funds from equities portfolio towards Debt funds and Hybrid funds. The golden question that arises is how does a common investor go about debt and hybrid fund selection? Investors especially now should first analyze the equity and debt composition of their portfolio as per their risk profile and appetite. And if they are planning reallocation of funds from equity to debt they should put in good research before making the move.

There are different debt investment instruments available in the market and investors should invest only in those funds that match their investment horizon and risk profile. Earlier there was a misconception that only Equity funds require ample study before investing. However the existing micro and macro economic conditions mandate the same for debt as well. I would like to point out an important principle which is at work which one can use as a good yardstick while selecting debt products. Interest rates and debt fund Net Asset Value are inversely proportional to each other. In a falling interest rate regime, debt funds are likely to provide decent returns.

Industry stalwarts are of the belief that currently there are too many different investment instruments of debt in the industry. And there is a need to consolidate a good number of them to make it easier for investors to understand. Their selection can normally be done under four major categories i.e Short term bond funds, long term bond funds, monthly income plans and ultra-short term funds. An investor should use proactive wisdom in choosing the right debt fund that meets his investment horizon and objective.

Recently a lot of investors who want to stay away from equities (due to the volatility involved) have shown keen interest in debt products in the form of reallocation or fresh purchase. Thus the current market scenario has brought these low risk and steady return funds out of the shadows of equity products. There is also an option of choosing a MIP which is a debt based hybrid fund of sorts. It has a greater allocation to debt than equity. Investing a certain portion of your portfolio in MIPs during volatile times would ensure that the investment will be safe due to the debt portion and when the market becomes bullish again, the investor doesn"t miss out in making good returns due to the equity portion in it

The smart investor would properly rebalance his portfolio keeping the market trends in mind, spending some time doing good research is what will aid in getting the best returns in any given market condition.

Keywords: Equity funds, debt funds.

Excerpt: Article analyses Debt funds for benefit of investors.

Author bio: I am a financial enthusiast and write on mutual funds for good financial reading.

Disclaimer:

1. Views as are mentioned in the article are personal views of Author and nothing to link with Co., its Director and Employees.

2. All investments are subject to market risk and you need to consult your financial advisor/consultant before investment.

by: Brian Anthony

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