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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  1. Subra,
    Just reposting part of a piece that appeared on your blog on 11 Aug 2011. The comment below was from a reader Shinu. No doubts he made the right decision.
    With the market reports today I do hope our elected reps. do a good job for our country.

    My view – The markets should fall minimum 40% (Sensex will fall to it low between 9000-12000)and the recovery will be extremely slow this time inspite of QE3, QE4…We are not decoupled to the extent that no FII activity there will not be any retail activity either even if the valuations are mouth watering. Next 4 years will be a testing time for all the equity investors BUT will reap the reward after that and will be spectacular for future under the next central govt be it any party/coalition… here or around the world. As all of you personal finance gurus are advocating i am going to dumb all my savings i will generate from now in SIP for the next 4 years minimum… If this goes through according to prediction – Sir I will retire before YOU.. –

  2. WOW… 🙂

    Dear Carl, thanks for reminding of my 4 year old view. I indeed done what i said and extremely happy of it and the goal already in sight.. Thanks to God and all my teachers including the very respected Subra sir whom i am sure to meet one day.

    🙂

  3. Oh my my. Even good stock market performance is credited to God. Even before the teachers. Argh.

  4. Ashutosh, Thank God for u and me are alive and be blessed enough to read and write, be educated enough, and be lucky enough to learn on stocks, funds, investments….and a thousand more things. God bless you bro.
    🙂

  5. Dear Sir, Thanks for the knowledge portal!

    I’ve few doubts.

    Typically, what type of debt funds will give good returns in long term (let’s say 12 years)? Any particulate recommendation? What’s the drawback if I kept my investment in a ‘Short term’ debt which is giving good returns consistently (in last 4 year. e,g: Taurus Short Term Income Fund – Growth) ?
    Thanks!

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