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RBI has consecutively reduced the repo rate five times. Is it still the right time to invest in debt funds? Also, what should be the modified duration for investing in debt funds to ensure a safe investment?
- Navneet
Your investment should neither be guided by RBI's actions nor by the interest rate outlook. When it comes to selecting a fund, you should first consider your time horizon - is it your long- or short-term money? If it is your short-term money, then it should only be invested in debt funds. Besides, it would be very risky to ride the wave based on the changing interest rate outlook.
You should also ensure that your debt fund is not very risky, as the main reason for investing in a debt fund is to lower the downside and safeguard your money, even if profits are not that high. Based on these considerations, you can get access to various debt funds. You have 16 categories of open-ended debt funds. However, only a few of them are valuable to a retail investor. Do not go beyond ultra-short and short-duration funds.
Having said that, while selecting a fund, make sure that it doesn't have any exposure to low credit quality papers. In the previous few months, debt fund investors have experienced the risk embedded in debt funds in terms of downgrades and defaults. These can well continue in the coming months. It is, therefore, important to take all precautions while selecting a debt fund and stay away from opportunistic investing to ride based on any recent performance.
This article was originally published on November 14, 2019.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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