Advantage debt funds
Debt funds comes in various forms ó liquid fund, ultra short-term, medium-term, dynamic bond , long-term corporate bond funds and gilt funds. With so many categories, itís important that you know what type of debt investment product you are investing in. Debt products carry interest rate and credit risks. In a rising interest rate market, if you invest in a longer duration debt product, your returns will be subdued and, possibly, below FD returns. Similarly, in a falling interest rate regime, if you invest in shorter duration debt products, you will bear the brunt.
Debt Funds ó G-Secs/Gilts
In a falling interest rate regime, government securities or gilts, as they are more commonly known, come into play. Government securities include Central government dated securities, state government securities and treasury bills. To enable retail investors to invest in gilts, MFs offer this product through gilt funds, as the space is typically dominated by institutional investors.
In the current economic environment, interest rates are expected to come down. Bond prices and interest rates are inversely related. Falling interest rates have led