The clouds of a crisis on the most trusted debt fund for investment have surrounded the entire mutual fund market. After Franklin Templeton closed 6 debt funds, the market was flooded with withdrawals, and risks on investment have begun to rise. What do investors do to get returns with keeping money safe?
Interest Rate Risk
Market analyst Sandeep Jain points out that interest rate changes pose a risk to debt mutual fund investors. Interest rates increase, especially when the economy is growing and rates go down at the time of economic slowdown. Since the growth rate is sluggish now, the market is likely to be in a difficult phase due to the corona crisis. Interest rates will also remain low, and the bond price increases. Mutual fund houses invest in similar bonds to get fixed interest, and investor's returns will also be reduced when they get less interest or returns. The impact of risk on interest rates is on all new and old bonds. The longer the maturity period of the bond, the higher the prices will be the same.
Re-rating... Ratings decreased, it will also have an impact:
Credit rating agencies (Fitch, Moody's, ICRA, etc.) have rating all kinds of corporate bonds and government bonds from time to time. It also affects the price and yield of bonds, as well as the high rating that reflects the risk level of a bond. These agencies will increase the risk when the bonds are re-rating, and the rating decreased due to the continued decline or default in the market. For example, if your fund house invested in a bond, its rating was AAA. Now it comes down to AAA (-), the yield of that bond will also be reduced. The returns of investors will also be affected.
Credit Risk... do not dip money:
Market experts say that if the corona crisis continues for another two-three months, the profits of the companies will have a serious impact. This will increase the risk of defaulting of companies whose bonds are put into bonds by fund houses. This situation will be the worst for investors, as then fund houses can refuse to return the money immediately by closing the scheme like Franklin Templeton. Many mutual fund houses also have money in credit risk bonds for higher returns, which have low ratings. These increased the risk of default.
Investors adopt three strategies:
Completely douche the portfolio through the fund house and immediately withdraw the money if there is an investment in a low-rated company. It is not a matter of concern if money is engaged in high-rating bonds or government bonds. After withdrawal, deposit your money as FD in large and reliable banks. You can also get corporate FD, which gives more returns than banks. However, you must see the company's position and FD rating. Maintain confidence in investing in small-cap funds through SIP. There is also a chance for new investors, as the nav of small-cap has now come to 2011 and a large-cap of 2011 and a large-cap at the 2015 level, i.e., it has become cheaper.
Trust Investors:
All investors should list their portfolios. If your investment is not in junk bonds and is linked to strong companies, maintain trust. Ask your fund manager for every investment information and consult the advisor, as the same bonds would be the first to increase the returns when the situation improves.
Read also: What is Personal Loan and how to apply for it: Know here about Interest on it
What is Third-Party Insurance? Know here how to claim for it
Image credit: economictimes.indiatimes