If 2018 was decisively the year of systematic investment plans in equity funds, it was definitely not the year of debt funds. To begin with, the year started with volatile yields on benchmark 10-year government securities (G-secs), and for most of the year, market-wide yields kept rising.This contributed to dismal returns for debt funds. On the shorter end as well, liquid and ultra short-term fund returns came down to levels of 5.5-6% annualised return from around 8% in 2016.
However, the real hurdle came in the second half of 2018 with default in interest payments and subsequent downgrade of debt securities from IL&FS Group companies. This marked a landmark shift in perception given that, till then, IL&FS was an AAA-rated debt security and one assumed it to be at the highest level of safety as far as payments were concerned. Overall, as earnings failed to recover meaningfully, across the board, credit risk funds saw a fall in returns.
