In all public forum nowadays (and even earlier) there is a tendency to blame the distributor. Let us see a typical debt market presentation:
Fund manager: Hello, today we are going to talk about debt funds
‘Debt funds have done extremely well over the past few years….’
Journalist: Why is there no retail participation?
FM: Oh! the distributor has not been selling it…
Journalist: Yes, yes, we heard that the distributor sells only funds which they like or which pays them well..
FM: yes! See the table – how well we have done…
Journalist: Sir, can I have a copy of the presentation please?
FM: of course…can we move towards drinks and dinner please?
My take: Debt funds have not done well over a 5 or 8 year period. In fact they have not done well at all. Only at times when interest rates fall, there is a good MTM which allows the returns to look good. For example income funds would have given returns of more than 6% in 2009, 2010 and 2011! This is a joke if you consider tax – even just the dividend distribution tax will take you to NEGATIVE REAL RETURNS over the past few years. There is no logic at all for the retail investor to invest in debt fund – except as a small time temporary measure. It is also fine to keep money in a liquid fund so that you can do a STP into an equity fund.
The gap between a well performing debt fund (Canara Robeco I think) and a JM mutual fund is so HUGE, that it looks like a joke. SBI has such a shoddy performance in its dynamic debt fund, you will not believe it. The best fund managers are quitting the industry, the mediocre ones are s….ing your portfolio.
There is no index fund among debt funds , so the fund manager risk is too high.
The only logic in keeping money in debt funds for long periods of time is – to save the income tax. If you keep the money in say a debt fund (which gives same returns as a bank) you save the Income tax – you pay it at the end of 15 years instead of paying it every year. This saves you a lot of tax and the impact of compounding is superb. However one fund performing well over a 15 year period is like Santa Claus – a myth!
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