Mar 29, 2017 12:05 PM IST |

How your debt fund portfolio gets impacted due to changes in debt markets

These changes must be watched carefully to understand the impact on the portfolio.

ByArnav Pandya
How your debt fund portfolio gets impacted due to changes in debt markets

Arnav Pandya

The sudden turn in fortunes of debt funds has led to an unhappy situation as far as investors are concerned. They find that the returns that they were getting have suddenly dipped and hence there is a need to ensure that a proper review of the entire debt mutual fund portfolio is undertaken.

This will need to be done in a proper manner and only when this is complete would the strategy for the coming months be decided. Here is a look at the manner in which investors should tackle the debt fund position that is prevalent now.

Past gains impacted

One of the first things that the investor would have experienced is that the change in the fortunes of the debt mutual fund sector has impacted their past returns. And this is not just the returns for a short time period but over a year’s returns have suddenly seen a change.

If one looks at the debt market, then there has been a pullback from the situation witnessed for the last few months but the impact in terms of the returns of the debt funds has been larger. While the normal experience for an investor is that the returns for a few months get wiped out, there is a larger risk present which is what has been experienced now.

The returns of a year or more have gone in many cases and the investor is staring at a portfolio with a reduced value. This is significant because suddenly the investor has to adjust for these losses and their long term debt portfolio does not look too healthy. However this is part of the investment process and is something that is commonly witnessed so the investor has to be ready to face this kind of position. The risk of finding a lot of returns wiped off can be a big jolt especially for those who are looking for safe investments but this is something that one has to be ready for.

Time to recover

The other part that the investor should also consider at this point of time is the period after which a recovery might be seen. Usually it is seen that when there is a change in the fortunes of the debt market then the recovery takes some time. It is not easy to witness a turnaround and it could be a while before the situation is stable and there are some gains that start coming in. This is the reason why one must take a careful look at the overall position and then plan the strategy going ahead. The time for recovery could stretch from 6-9 months and the investor has to be ready in such a situation to make use of the position once the tide has turned.


The main question before investors is whether they should continue to have an exposure to debt funds. In this regard there is little doubt about the fact that there should be some exposure but this might have to be regulated based on the outlook of the investor and their goals. There will be such periods of turbulence but if the outlook for the investor is a long period of time then these would be absorbed by their portfolio without much of a disruption. This is also the reason why the selection of the type of fund is important as it has to match with the period available for investment, Not making the right choice can lead to a lot of heartburn plus a bigger problem in case of such a reversal as there might not be enough time left for the returns to recover. Overall debt funds need to be a part of the portfolio of investors.
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