It was in the month of May 2013 that debt funds looked good! From June onwards there has been a lot of turmoil, and in July and August all of us have seen a lot of turbulence in debt funds.
For those who invested in Gilt funds, my condolences. The people who invested in Corporate Bonds also there would have been some hurt in July and August.
Does one have to react to such a situation? If yes, how does one react?
Tough to say. The answer will also depend on case to case basis – If you ignore INCOME tax bank deposits giving you about 10% p.a. for senior citizens and about 9.5% for others is surely not bad.
However, if you are in a position to NOT WITHDRAW AT ALL FROM A DEBT FUND for say 15 years you have tons of options. You could invest in a Corporate Bond fund with a short maturity – say 2 year duration. This currently yields about 9% p.a. and seems to be reasonably safe. Stay on in this fund for a few months, and you will get 2 types of returns –
a) the yield of 9% p.a. and 2) the portfolio appreciation when interest rates go down
I do not see the interest rates going down very easily – unless Modi does something dramatic about dollar inflows into the debt market.
If you have a longer horizon of say 10 years and do not want to worry too much about day to day fluctuation you could go for funds with longer duration. Of course higher risk is attached….
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