The famous dialogue from 'Dirty Picture' says a film runs on three things - entertainment, entertainment and entertainment. Similarly, given the current economic scenario, the only way to assess a debt fund is safety, safety and safety, feels Manoj Rane, Partner at Sionic.
Manoj is of the view that in the wake of government and regulatory measures, the true asset quality of many corporates can be assessed only after a couple of years.Therefore, it is important at this point to pick debt funds that invest in very safe instruments such as government securities, state development loans and AAA PSU papers. His investment mantra is simple - Do not have any guilt to invest in gilts.
Manoj shared these insights at Cafemutual Confluence 2020 Investment Marathon. Prashant Pimple, Senior Debt Fund Manager at Nippon India MF and debt guru Joydeep Sen joined him. Prem Khatri of Cafemutual moderated this session.
Prashant Pimple, Senior Debt Fund Manager at Nippon India MF agreed with Manoj on the need to look at safety and liquidity of a debt fund. Prashant further added that if investors are sure about the asset class and the investment horizon, they are unlikely to end up with negative returns from mutual funds. For instance, if the investment horizon is 3-6 months then gilt funds may not be the safest choice as they carry interest rate risk. However, if the investment horizon is of -7 years, gilt funds are a safe investment vehicle that can offer handsome returns, said Prashant.
Joydeep also said that gilt and duration funds could be good choices for the long run. He added that while picking a debt fund, the first challenge is to figure out the category that suits an investor’s requirement from the 16 categories of debt funds. Next, investors need to check the AMC style and then the track record of the fund house and the fund manager.
Fund recommendation
Joydeep felt that if investors are parking money for their emergency needs, it is prudent to go for overnight or liquid funds. For an investment horizon of 1-3 years, banking & PSU bond funds fit the bill. And for a 10-year investment horizon, gilts or dynamic bond funds are suitable.
Prashant recommended high quality corporate bond funds and banking & PSU bond funds for an investment horizon of 1-3 years. For a 10-year investment horizon, Prashant suggested gilts or dynamic bond funds.
Manoj recommended high quality corporate bond funds for an investment horizon of 1-3 years and gilt funds for a 10-year investment horizon.
