Factors to look into the debt mutual funds
The debt mutual funds are always the great options for getting the returns which are quite stable with a lower tendency of risk. The debt funds offer a wide bandwidth of solutions for investment needs. Some of the most intricate and absolute investment needs include the tenures that are feasible, the liquidity of investment as well as the risk appetites. Are you amongst those beings who lack complete idea about such funds? Then you are in the right place. Here is all that you can know about the Debt mutual funds.
What’s the credit risk?
Credit risk is now quite a hot topic as of now in the scenario of the debt mutual fund space. It has been a year since a strong impact of the credit ratings is observed in the mutual fund space. This is the risk that refers to the inability of issuers to serve the debt obligations.
In the past when it was good market time, the debt issues could raise the amount from the banks to meet the current obligations even in the cases when their source of income fell short of making the interest or principal payments of the debts. With having access to a whole lot of money the issues were hardly able to make high yields debt repay.
Thus, investors become happy and mostly unbothered with credit risk. But this is the time where there is a change noticed in the banking system which is an NPA crisis due to which the scenario has changed. The market has been noticing some high-profiled defaults. Credit became difficult to come.
Some rules and regulations brought by SEBI to the mutual debt funds have made the credit risk an even more serious factor to consider. Even safer funds have a certain risk factor attached to it.
What is concentration risk?
Concentration refers to the proportion of keeping up with a specific bond. Thus, higher the concentration is a fund, higher is the risk. The investors must essentially avoid the concentration risk. The only integral rule of putting investment in mutual funds is diversification. This is a clear contrast to concentration. Over the past years, SEBI has brought several reforms that have eventually reduced the concentration risk. Investors must do their homework before deciding on their investment decisions. The views on the concentration risk might differ from person to person. Taking risk is something that is based on individual financial stability. Concentration risk is a genuine factor that governs debt mutual fund returns.
Thus, the credit risk and the concentration risk are the two major factors that govern the returns of the debt mutual funds. Going through the article one can get to know in detail about these factors and hence, you can know the debt funds better. Ultimately you can sense the future of your investment in a better way. In this way, you can apply your learning or can even take a professional approach by taking the help of the financial advisors.