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Where should I invest my fixed-income allocation as debt funds have become risky?

Although there have been accidents, being careful while investing in debt funds can help, says Dhirendra Kumar

Banks have already reduced interest rates on fixed deposits and nowadays, most advisors are saying that debt funds are also risky. So, where should one invest for the fixed-income part of the portfolio?
- Shanmugam V

The month of March was a time when we witnessed an unprecedented combination of events. This scared investors and the markets, too, particularly fixed income. Six funds of Franklin Templeton actually faced a debacle, as they had to be shut down. Now, these are due for winding up and the legal process is on. So, investors are very scared because of that event.

I would say that first investors should be optimising their fixed-income returns. But that doesn't mean that one should be embracing or inviting risks rather carefully investing in funds where risk is measured. If you are a long-term fixed-income investor, then you need a certain kind of a fund and if you are a short-term fixed-income investor, then you'd need to invest in a different kind of fund. So, if you are careful, that itself will help save you from all the risks.

Now, of course, the accident happened and it has scared both investors and advisors but you don't' stop travelling in aeroplanes because there was an accident. You keep going. So, that is the way of looking at it. I would also like to give a tip here. When investing in a debt fund, never choose the best performing one in the recent time period. This is because the best performer is hiding some risk that it's taking, which other funds have not.

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