Mutual funds
Mutual funds have been promoting, mutual fund sahi hai very aggressively and encouraging investors to invest without knowing the risk in them. As per mutual funds sahi hai website, details of debt funds is given as below:
https://www.mutualfundssahihai.com/en/why-should-I-invest-in-debt-funds
We must eat a balanced diet for the overall growth and well-being of our body. Our body needs different nutrients to keep itself healthy and fit, and one kind of food cannot provide all the necessary nutrients. Hence, we must eat different kinds of food in the right proportion to maintain our body.
Each nutrient has a unique role to play in the well-being of our body (e.g. Carbohydrates give us instant energy while proteins help in the growth and repair of tissues). Similarly, we need a balanced investment portfolio in life to ensure our financial well-being. Within the portfolio, we need a mix of different kinds of assets that play different roles like the various nutrients in our diet.
One should invest in different kinds of assets like equities, fixed income, gold and real-estate for financial security and prosperity. Individual investors may find it difficult to invest directly in some asset classes like fixed income, which includes bonds and money market instruments. Instead, they can invest in Debt Funds that invest in such securities. They offer lower but relatively stable returns, thus providing balance to your portfolio of equity, gold and real-estate investments.
When you park your money in a bank Fixed Deposit (FD), the bank promises to pay fixed interest in return. Here you’ve lent money to the bank, and the bank is a borrower of your money, owes you a fixed periodic interest. Debt Mutual Funds invest in debt securities like Government bonds, Company bonds, Money market securities. Bonds are issued by corporates like power companies, banks, home finance companies and the Government. These bond issuers promise to pay their investors (those who buy their bonds), a periodic interest in return for their money invested in the bonds.
Many investors after reading this article and many other articles on personal finance about debt fund invested in debt funds with the mindset that they are safe and alternative to FD etc. Most investors do not understand the risk involved in such funds. One such classical example is debt fund offered by Franklin India Ultra Short Bond. This fund was darling for most new investors including me who picked this fund as it has given high return in the past.
Franklin Ultra short fund has high amount of credit risk in its portfolio—as of June 2018 it held 52% in instruments below AA+ rating as compared to the category average of 19%. Most so-called experts in personal finance did the same. Please see the proof below:
This is from another leading Personal Finance website which has given gold status to this fund.
I too had invested in this fund but luckily came out of this fund over 3 weeks ago given the quality of low-grade AA or less rated corporate debts. As of now this fund has given only 4.75% return over 1 year which is far less than return in ordinary fixed deposit of around 6.5%. Just to get more return than FD, many who still hold this debt mutual funds are either booking loss or withdrawing from this fund. 5* rating was given to fund by Morningstar and Valuesearch fund
Mutual funds may be Sahi hai but return are not sahi hai. Do not chase returns. Give top priority to risk also as all schemes have built in risk.
Ask an experienced financial planner for guidance in determining how to manage your funds – and for exploring your options to generate reliable income. They can help you build a rock-solid strategy that lets you enjoy a predictable lifestyle for the long haul.
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