Are debt funds risky now?

Debt funds invest in fixed income securities and are less risky as compared to equity funds.

What happens to debt funds when market crashes?

There won’t be much impact on debt funds if the equity market crashes because the dynamics of the fixed-income market are very different. What has a bearing on debt funds is the general state of the economy and inflation rates. Bonds are hit if interest rates go up. They benefit if interest rates go down.

What makes a fund high risk?

A high-risk investment is one for which there is either a large percentage chance of loss of capital or under-performance—or a relatively high chance of a devastating loss.

Which is best debt fund?

The table below shows the best-performing debt funds based on the last 5-year returns:

What is an example of a debt investment?

Debt investments include government, corporate, and municipal bonds, as well as real estate investments, peer-to-peer lending, and personal loans. Such investments typically offer a lower but more consistent return than stocks.

What are the risks involved in investing in debt funds?

But the key risks which needs be considered before investing in Debt funds are Credit Risk and Interest Rate Risk; The chances that a borrower might not repay the interest or principle on the committed date is considered as credit risk or default risk. Credit risk is measured by “Credit ratings”.

What is a credit risk in mutual funds?

A credit risk arises when a company that has issued the debt instruments does not make regular payments. In such cases, it has a major impact on the fund, depending on how much portion the fund has in the portfolio. Hence, it is suggested to be in debt instruments with a rating higher credit rating.

Are debt funds safe as compared to bank deposits?

Debt funds are definitely not as safe as bank deposits. Firstly, in case of debt funds, you don’t know the rate of return you will get but in case of banks, you know that already. The primary risk associated with a debt fund is of default.

How to select the best debt fund for your investment?

Investors need to be clear on their time horizon of investment when selecting the best Debt fund for their investment and also factor in the interest rate scenario. For investors with a very short holding period, say for a couple of days to a month, Liquid Funds and ultra- short term funds may be relevant.