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Is now a good time to invest in debt funds?

Dhirendra Kumar explains how to approach debt funds now that their values have come down

Transcript: Don't do that because it's not a rally that has come down. In fact, everybody has been wrong. The only way to not get disappointed by anticipating these situations is by aligning your fixed income investment with a reasonable time frame.

The RBI Governor has been quite explicit in his statement that this is going to be a status quo. I would say don't go with the fund manager's expectations or with the RBI's statements. Go with what is in your control. If you have money for few days, don't take any chances. If it's for a few weeks, let it lie in a fund which is insulated from this risk. If you have money meant for long term (2-3years), choose between income funds and FMPs, depending on your risk tolerance or liquidity needs. I think income funds will give reasonable returns; very much in line with the current rate.

One thing that investors should make sure of is that a fund is not taking undue credit risk. You can do that by checking one thing on any fund page on - look at the allocations to lower rated bonds in the portfolio. You must do this check before investing. And if you find the number to be 15-20% and more, keep away from that. Don't try to make a little more because in debt fund a little more earning isn't much, but when you take a hit, it is substantial. Taking a 5% or 10% hit on debt fund is very disappointing.

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