Some distributors have a new pitch for selling debt funds to their clients. According to them, even if a fund is hit due to a default, investors still stand a chance to make better returns than in a bank fixed deposit (FD) over the long term.
The pitch may hold true in some specific cases, and calculations a distributor shows may look convincing, but a lot depends on the percentage of the portfolio that is hit by the default. The pitch goes as follows: Even if 2.5-5 per cent of the portfolio gets hit due to default in a fund giving 7.5-8 per cent return, the investor in the highest tax ...
