Debt Funds- Don’t Panic & stay invested!

The Debt Mutual funds are considered low risk schemes that invest in instruments which yield a fixed income: such as government bonds, company debentures, commercial paper and etc. This does not mean that they offer guaranteed returns – only a relatively more certain return if invested for three or more years. It is recommended to invest in Debt funds for 3 years or so, not only from Taxation purpose but also for the funds to generate desired returns. However, it’s important to understand that returns in Debt Funds can be fluctuating for a short period due to fluctuation in interest rates in Economy. There is an inverse relationship between G-sec yield and Debt fund returns which means as and when the interest rates goes up the returns of Debt Funds goes down and when the interest rates goes down the returns would go up.

This is exactly what we are witnessing in current markets where the interest rates are going up which has affected the returns of Debt Funds. Refer above table; the 10 year Benchmark (index for Debt Funds) has moved almost 1.75% in last 1.5 years (from 6.19% to 7.83%) which has adversely impacted the returns. We witnessed very similar situation in 2013 a steep increase of yields by over 2% (from 7.20 to 9.24%) in 2 months which brought negative returns to Debt Funds. It is important to note that the investors who didn’t panic and remain invested in the scheme for 3 years and more got the targeted returns and those panicked had to settle with negative returns. Thus, Stay Invested for the period you have been advised and You Won’t Go Wrong!!

Disclaimer
The data has been taken upto 5th June 2018