Safeguard your goals with debt mutual funds
Debt funds are mutual funds that invest in fixed income instruments, such as corporate and government bonds, corporate debt securities and money market instruments that offer potential capital appreciation. Let’s take a closer look at the important role debt funds play in your investment portfolio and clear some of the myths associated with them.
Myth - Debt funds are only for conservative investors
Reality - Debt funds are a good way for investors to balance their overall investment portfolio. However aggressive an investor’s portfolio, an allocation to debt is always advisable, even if it is miniscule. Debt funds are a great avenue to help an investor diversify the portfolio into a different asset class.
Myth - Investor needs huge amount of money to invest in a debt fund
Reality - Investors can invest in a debt fund with as little as `5,000. If you need to park your cash for just a few months, there are ultra-short duration or liquid funds to look at. Short Duration Funds are for those who would like to invest for a period ranging from one to three years. For periods beyond, there are intermediate and long-term debt funds.
Myth - Debt funds are risk free
Reality - While debt funds are not as volatile as equity funds, they are not without their share of risks. The two prime risks in a debt instrument are:
- Interest rate risk - This refers to a change in the price of a bond due to the change in the prevailing interest rate. The higher the maturity profile of a fund’s portfolio, the more prone it is to interest rate risk.
- Credit Risk - This refers to the fund's credit quality. Credit quality aims to measures the ability of an issuer to repay its debts. Low credit quality of a fund’s portfolio denotes its inclination towards the credit risk.
Myth - Debt funds don’t offer variety
Contrary to the popular belief, debt funds come in various types. Some of them are:
Debt funds give your portfolio the stability it needs and are an important tool in a balanced investment strategy. So, go ahead and safeguard your goals with the help of debt mutual funds.
An investor education initiative by HSBC Mutual Fund
Mutual fund investments are subject to market risks, read all scheme related documents carefully.