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Does debt fund perform well when the equity market falls? Is it wise to switch our investments from equity diversified to debt funds when the equity market is falling?
-Cherry Thapar
No, there is no such relationship between equity and debt funds. Both equity and debt funds are two different investment avenues. The factors affecting these two asset classes are different.
While the performance of equity funds depends on the share market, the performance of debt funds depends primarily on the interest rate movement.
Since both the asset classes are affected by different factors, both asset classes may not rise or fall together. Therefore, it is always advisable to diversify one’s investments amongst asset classes. One must arrive at an appropriate asset allocation between equity and debt in his portfolio depending on individual needs.
This article was originally published on June 01, 2009.
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