DEBT FUNDS GETTING FOCUS FROM INVESTORS

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DEBT FUNDS GETTING FOCUS FROM INVESTORS

DEBT FUNDS GETTING FOCUS FROM INVESTORS



The low duration debt funds have seen a 23% rise in the last two months. After the great fall on all Franklin Templeton debt funds in January followed by closing six debt schemes in March 2020.

Most of the investors moved out of debt funds, almost 1, 30, 000 crores were pulled out of all the debt funds. Due to the huge volume of funds redeemed by foreign investors, the fund’s NAV had seen some fall.

RBI then intervened and supported all AMC (Asset Management Companies) with 50,000 crores and NAV came back to its position.

Investors are not interested in parking their funds in both equity and high yielding bonds or funds, as it is associated with high credit risk.

 

LOW DURATION DEBT FUNDS:

 

          The low duration debt funds like liquid funds, ultra-short funds, short term funds, and dynamic funds have seen attention. Investors have a clear idea as in the falling fixed interest rate market, a 7-8% return will be a great deal.

          When private bank’s FD rate has slashed down to 5% and even lesser, the low credit risk funds with shorter duration. As the investors have pumped in the money back, the AMC has seen an 8% growth.

          Even for the RBI 7.75% bond, there were more subscriptions in the market. As the interest rates are at a historical low, the investor’s appetite was at getting a decent return.

          In the last few months, many people focused on building emergency funds as COVID taught them the importance. So, the liquid funds and ultra-short-term funds are at high growth in terms of funds received by investors.

 

LAST 6 MONTHS OVERVIEW OF DEBT FUNDS:

 

Debt Funds - Inflow and outflow of cash

Source: live mint

The above picture has shown you a clear picture, how much the investor took the leverage of the debt market.

In the same debt funds, the high yielding funds have seen a 26% drop in value and low yielding funds have seen a 23% appreciation over the last 6 months.

In the month of July, almost 36,790 crores have to been invested in debt instruments. This is the highest ever investment in the last year into debt instruments.

Almost 2580 crores of amount have been pumped out of Equity mutual fund in the month of July. Since the market has been shown some positive marker at 11300, many investors called off their active mutual funds and moved towards debt funds.

 

WHAT AN INVESTORS SHOULD DO?


·       The statistics of the debt funds have been seen in the last few months.

·       As the equity market doesn’t show any growth in the last one month in terms of earning and P/E ratio. It is good to invest in debt funds where you at least get 7-8%.

·       The same return will not be seen in equity for the next three years until the market corrects for a crash.

·       It’s is always good to stick with short duration funds like liquid and ultra-short-term funds.

·       You should know that the debt market in recent days has shown a stagnant in growth, the NAV of funds is moving in a flat way. This is the pointer that the funds will not perform as you expected to see the past performance data.

·       Investors should park the amount in debt market with more care, find the fund holdings with more government bonds like GOI, RBI, State government and CRISIL AAA, AA+ rated corporate bonds.

·       As many investors did, redeem your funds from active equity mutual funds. Invest them in direct debt funds.

Again we say, the return on debt funds currently will not yield as you expect on seeing the past performance. But, it will yield a good return compared t Bank FD and equity mutual funds for next 2-3 years. So, always plan to invest in liquid funds and ultra-short-term funds.

 

CONCLUSION:

 

·       Debt funds had seen a 23% increase in inwards of cash after continuous 3 months fall up to 26%.

·       Debt funds are focused as the liquid fund, ultra-short-term fund, and dynamic funds have increased 8% in its fund size.

·       Investor got an awareness of emergency funds and the liquid funds are allocated.

·       Currently, equity mutual funds have been redeemed by investors and parked in debt materials.

·       Investors have to invest only in a liquid fund and ultra-short-term funds as it has a low credit risk.


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