How to Evaluate Debt Mutual Funds?

Some people feel that investing in equity funds and investing in mutual funds requires high risk. The truth is that market regulator SEBI has further categorized mutual funds so that investors are able to distinguish between multiple schemes and make an informed investment decision. An investor’s risk appetite plays an essential role in investment planning. Every investment product carries a certain risk profile. Hence it is better to determine your risk appetite so that you continue investing within your financial boundaries. If you are keen on generating capital gains through investment in mutual funds but do not have the appetite to invest in equity related schemes then you can consider investing in debt mutual funds.

Debt mutual funds are those funds that invest in debt securities and other debt related instruments. Debt funds seek capital appreciation by investing in fixed income securities that are known for generating regular income.  The fund manager managing the debt fund is responsible for crafting a defined investment strategy which will help the debt fund achieve its investment objective. .Debt funds generally considered by people for meeting life short term financial goals. Short term because debt funds generally invest in fixed income securities that mature over a stipulated period of time.

Investment in debt mutual funds may help investors in meeting their life’s short-term financial goals. However, here are some of the things that those keen on investing in debt funds should keep in mind so that they are able to evaluate these bond funds and before investing in it.


Suppose you invest in liquid funds to build an emergency fund so that you can use this corpus to tackle life’s exigencies. But if the liquid fund you are invested in has exposed most of its assets to commercial papers this means that you have invested in a highly volatile fund. This also leads to the fact that just because you are investing in a debt fund a dash to be a low volatile fund. How a definite look is a search across various money market instruments is equally important in the scheme’s overall performance.

Proper allocation

If you have surplus capital sitting idle with you which you will be utilizing in a short span of time, you can invest this money in overnight funds. Overnight funds invest in overnight securities that mature in just 24 hours. But if the overnight fund invests in securities that mature much later, then it may hamper the performance of the scheme. Hence, investors need to make sure that they invest in a debt fund that allocates assets in the right manner.

Investment objective

It is extremely important for the investment objective of the debt fund to synchronise with that of the investor. This will help the investor in choosing only that fund which is able to fulfil its short term and long term income needs. For example, if you are seeking investments in funds that invest only in government securities then you can consider investing in a gilt fund. If you have a long term investment objective then you can even consider investing in a long duration fund.

Past performance

Although it is true that the past performance of a mutual fund may or may not replicate its existing or future performance, it helps investors get a fair idea about the funds consistency in terms of its performance. If the fund has been underperforming for the past 52 weeks this means that one should not take the risk and invest in this fund. I will invest in a consistent performing find rather than investing in a top performer.

If you feel that you need assistance in evaluating debt funds you can always see the help of a fund advisor.

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