Here are Pallav’s key takeaways:
- Investors use debt mutual funds to park money for different time horizons and ultimately use it to invest in other asset classes. Hence, it is used as an asset allocation tool.
- Advisors need to identify funds which stick to their mandate and avoid taking unnecessary risk by recommending risky funds which offer higher yield.
- Some incomes funds are running on 20-25 years maturity which is very risky. Income funds and dynamic funds are volatile for an investor who normally has a time horizon of three years.
- Credit risk on money lent by a debt mutual fund is different from that of the banks as both operate on different systems. Banks are ready to take project risk which leads to NPA issues but debt MFs lend to running businesses with very robust cash flows and offer stable interest payments.
- Debt fund managers ensure that they lend money to good businesses run by quality management.
