In the last 5 years, some of these funds that typically yield single-digit returns offered as much as 27%. We explain why in the next slide.
These funds yielded abnormally high returns due to recoveries from defaulters, which may be a one-off. In other words, they had exposure to defaulting issuers.
These funds are a favourite among safe investors because: - They have only 40% equity exposure - They can provide stable returns
However, these low-risk, low-return funds can deliver as much as 18%. But if you look at the table, these funds have also had major downswings in last 5 years.
Therefore, some of these so-called stable funds are actually as volatile as an equity fund and, therefore, hardly meet a safe investor’s investment objective.
- High returns are just one piece of the puzzle - Consider your investment objective, risk appetite and time horizon - Remember, if it’s too good to be true, it probably is