Unlike fixed deposits, debt funds are not risk-free assured return instruments. They are affected by interest rate fluctuations. Falling interest rates will result in rising prices of the underlying bonds while rising interest rates will result in falling bond prices. So debt funds do better in a falling interest rate scenario.
The higher the maturity profile of a debt fund, the more is its sensitivity to interest rate fluctuations. So short term debt funds are less affected by interest rate outlook than long term debt funds. Liquid funds would be a better option as they invest in short term instruments such as treasury bills, certificates of deposits and commercial papers.
Note: This article has been written in the assumption that you know about Mutual Funds. If you have any other clarifications please get back to me
Subscribe to:
Post Comments (Atom)
Posts
No comments:
Post a Comment