Is This The Right Time To Invest In Debt Funds?

We all know that Mutual Funds hold the potential to offer capital appreciation over the long term. One can even start a systematic investment plan and start investing in mutual funds with an amount as low as rupees 500 per month. Market regulator SEBI (securities and exchange Board of India) as for the categories in mutual funds for investors to be able to take an informed investment decision. Some of the major mutual fund categories include equity mutual funds, debt mutual funds, hybrid funds, gold exchange traded funds, PSU and banking funds, retirement funds, children’s fund, index funds, etc. This categorization has been done by SEBI based on several unique attributes like risk profile, investment objective, investment strategy, asset allocation etc.

Several Indian investors are under the false assumption that the only mutual funds that one can invest are equity funds. And since equity funds are volatile in nature, people feel that investing in mutual funds will only lead to losses. If you are someone who is seeking capital appreciation by investing in mutual funds but do not carry a high risk appetite, you can consider investing in debt mutual funds. While equity funds predominantly invest in company stocks and other equity related instruments, debt mutual funds are those funds that invest in debt instruments and fixed income securities. Debt funds are known to be less volatile in nature as compared to equity mutual funds. Debt funds aim at generating profits by investing in fixed income securities like debentures, company fixed deposits, treasury bills, call money, G-Sec, corporate bonds, etc. 

Is this the right time to invest in debt funds?

The ongoing coronavirus pandemic has affected markets globally. This might be the right time to invest in debt funds considering the net asset value of several funds is low. In the future when the markets become normal, your debt fund units that you purchase at a lower NAV might see a sharp rise in their market value over the long-term and give you commendable capital gains. The reason most investors incur losses in mutual funds is because they panic and sell. Understand that if the markets are underperforming at the moment, they are not going to behave in the same manner for a long period of time. It may take some time but eventually your investments will start showing their true potential. Historically, mutual fund investments have shown their true potential only when investors remained patient with their investments. Instead of panicking and withdrawing funds because your portfolio is incurring losses, investors should invest more as they are getting the opportunity to buy more units because of the low NAV. 

If you are new to investing you can start a debt fund SIP to inculcate the discipline of se regular investing. Systematic investment plan allows investors to invest small amounts at regular intervals and indifference instead of making a one-time lump sum investment. Systematic investing via SIP leads to rupee cost averaging which can benefit once portfolio over the long term. When the net asset value of a debt fund is low, more units are allotted to the investor’s portfolio. Similarly when the value of a debt fund is high the units are adjusted depending on the SIP amount and the existing in NAV.

Although this might be the right time to invest in debt mutual fund investors should bear in mind and mutual fund investment does not guarantee returns. Hence it is better to consult a financial advisor who might be able to help them in making informed investment decisions.

What do you think?

Written by Paul Watson

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