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What factors should one consider while investing in a debt mutual fund?

Dhirendra Kumar sheds light on the things that debt fund investors should consider

What factors should an investor check before and after investing in a debt mutual fund scheme?
- Elin Jain

Before investing in a debt fund, you should try and match the fund's orientation with your goals. If you are investing for a few days and choose to invest in a fund with long-maturity bonds, it won't be an apt choice. So, make sure to opt for the appropriate category. Further, don't get carried away by the recent returns of the fund, as that may mislead you.

Once you have invested in the fund, do keep an eye on the credit quality. You can come to Value Research Online for this. Open the selected fund's page, go to the portfolio section and check how much the fund is invested in sovereign and AAA segments and how much exposure it has in lower-rated bonds. If you notice that the latter is increasing, you have a reason to worry. Because usually, lower-rated papers are investable bonds, but in bad times they suffer. And many times, we have seen that most of the debt crises come when you least expect.

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