After not so good performance of debt funds in 2021 and predictions of returns plummeting further in 2022, debt funds are no longer in the recommendation list of majority of MFDs, shows a poll conducted by Cafemutual.
The survey shows that only 16% of the MFDs are still recommending debt funds. The rest are either looking at bank FDs, corporate FDs or hybrid funds.
The survey, which received 4,190 responses, asked MFDs if they are recommending debt funds to clients. 16% of the respondents said they continue to recommend debt funds as they are more tax efficient. 32% said they are favouring bank FDs due to higher returns. The rest 52% said they are recommending corporate FDs and hybrid funds.
Most debt fund categories have not performed well in 2021. In fact, most funds failed to match even the returns of bank FDs. Data from Value Research shows that dynamic bond funds delivered 3.5% return in 2021. Ultra short duration, banking & PSU and corporate bonds also generated similar returns.
During the same period, FDs of major banks delivered a return of around 5%.
Given the last year’s poor performance and the expectations of returns going down further due to rate tightening in the future, many MFDs have stopped recommending debt funds to clients.
"The poor returns are on expected lines. Given the low yields and high expense ratios, there was no scope for good returns. We have been asking clients to put money in bank FDs for the last one and a half years. And we are likely to do the same this year as returns may decline further when interest rate will start to go up," Ranjit Dani, co-founder of Think Consultants told Cafemutual recently.
Deepak Jaggi of Satco Wealth said that instead of debt funds he is recommending bonds, corporate FDs and hybrid funds.
"We are suggesting hybrid funds to clients with 3-year horizon. For those with less time in hand, we are recommending corporate FDs as some good companies are giving 6-7% return," he said.
