Investment in debt mutual funds can help investors: Crisil Research

Recent defaults, sectoral slowdown, and closing down of some debt mutual fund schemes had their impact on the debt mutual fund industry, the note said.
Despite events like Franklin Templeton closing down 6 schemes after the Covid-19 outbreak, domestic rating agency Crisil on Tuesday said investing in debt mutual funds could help investors.

The rating agency's research wing suggested it was wise to invest in debt mutual funds and the investments could still pay, provided one knew how to invest one's savings in them.

Earlier this year, Franklin Templeton shut its debt schemes citing market conditions with a commitment to pay unit holders over time and triggered a massive concern among the investor community.

"Things aren't all bad. Indeed, dive a little deeper and there are streaks of silver options among various categories of debt mutual funds that can help ride over the challenges being posed by the pandemic's economic blow," Crisil said in a note.

It said equity markets were down 21 per cent from January 1 onward, and also acknowledged that the debt markets had not been spared either as over Rs 1.94 trillion of outflows were recorded in March and the assets under management plummeted 18 per cent to Rs 22.26 trillion.

Recent defaults, sectoral slowdown, and closing down of some debt mutual fund schemes had their impact on the debt mutual fund industry, the note said.

Notwithstanding the panic felt within the debt fund space, mutual funds are able debt investment vehicle and suggested factors to be looked into to ensure better returns while investing basis an analysis, it added.

Within a category, there is a variation in schemes faring differently across various risk assessment parameters, it said, adding this underscores the fact that there are still good choices available in each fund category.

It is imperative for investors to follow proper review/ monitoring mechanisms to help evade the risk associated with bad choices. The need of the hour is to choose quality funds carefully and keep an ear out for the warning bells, it said.

The situation is limping back to normalcy for the debt MFs with inflows into safer investment avenues of government securities, state-run enterprises, and public sector undertakings funds witnessing inflows.

The pandemic appears to have caught the industry in a cleft stick and it is imperative for investors to look closely at their portfolios, spot the warning signs, and act promptly.

It said credit profiling, liquidity profiling, diversification of profile and sector profiling can help investors who are looking at debt MF investments.


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