VR Logo

Debt Fund Volatility

Vishal Gupta has invested in 2 debt funds & wants to know if there is a possibility of him losing his capital

I have invested Rs. 7.5 lakh in Birla Income Growth fund and Rs. 2.5 lakh in HDFC Income Fund (Dividend). I invested in them because my advisor suggested that I could get between 10-15 per cent in the next three months, with hardly any risk to my capital. But with recent decline I am quite alarmed. How do the next 3-6 months look to you? Do you see a possibility that I could lose my capital? Would you advise me to withdraw at some particular stage, even if I have to pay the exit load? If yes, what would that be?
-Vishal Gupta

The slew of measures recently taken by RBI is to combat the credit squeeze and to inject liquidity into the system. Although this has resulted in a rally in the prices of government bonds and this is attracting everybody towards gilts, this is not a time when the fixed-income market is operating normally. So, the debt market is heading towards volatile times in the near future.

The above mentioned two funds held by you have given returns in excess of 10 per cent in the last three months. Softening interest rates is what has helped these funds. It is to be remembered that interest rates have been falling for quite some time now and may or may not continue to fall. But it is important to understand that the principal is not protected from losses. The value of the underlying instruments in a debt fund change with fluctuating interest rate. Hence, whether to remain invested in the funds or not would rest upon your willingness to cope with volatility.



Post Your Query