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How to manage Volatility in Debt Mutual Funds

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The debt mutual fund space is creating a lot of confusion among investors, especially the new ones. After a series of cuts in bank deposit rates and small savings, many new investors have started investing in debt mutual fund schemes. However, the complexity of the space is challenging most investors.

Top mutual fund managers believe that these investors would fare well if they stick to an asset allocation plan in debt. The best strategy to avoid volatility in the debt space at this point is having an asset allocation

Many investors are familiar with the concept of asset allocation. However, most of them do not associate it with debt investments. So, is there a formula? There should be three baskets in which you put your debt investments: short/ultra-short term funds, credit opportunities funds and bond funds. But, at this time, when the interest rates are not headed anywhere, it is good to stay away from long-term bond funds

Debt investors should resist the temptation to take extra risk for extra returns. Debt investors who are looking for an alternative to their fixed deposits shouldn't get into riskier products like long-term gilt and try to take calls

20 per cent of the portfolio should always be in short-term funds. Invest 20-30 per cent in regular savings funds and rest in credit opportunities or dynamic bond funds

Short-term bond funds are a must have in your debt fund portfolio. If you are investing without the guidance of a planner, you might consider dynamic bond funds, but don't take calls on the interest rates. It can be risky

Investors to play it safe if they want to invest in long-term debt funds. Don't be out of duration funds. The exposure should be lower than what it was last year but you should be there. Also, a top-up of low-risk credit opportunities should also be there. Stay mostly in short-term funds

Planners like them believe that credit opportunities funds are a good bet for investors who can study the portfolio very well before investing. "Credit opportunities are risky but if you have the stomach and the knowledge, you should incorporate them in your portfolio. If an investor can look at the portfolio of the credit funds they should definitely invest in them. If you can study the quality of the papers or going through a seasoned planner, credit opportunities are a good bet





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