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Re-visiting debt mutual fund options

Debt mutual fund schemes have again made a strong appearance on the performance charts. Arnav Pandya tells us reasons for this phenomena.
None | By Arnav Pandya
UPDATED ON APR 13, 2008 11:06 PM IST

Debt mutual fund schemes have again made a strong appearance on the performance charts. There are several reasons why this has occurred and one has to look at the position carefully while understanding what is happening all around. This will bring a clearer picture not only in terms of insight but also when a decision is being made for the purpose of shifting money.

Relative effect

There is a relative effect that is at play in several cases. Till just a few months ago no one was willing to look at debt oriented schemes because equity oriented schemes were performing so well that it seemed strange as to why would investors go towards this area when they have high returns options available right there.

This kept the schemes in the background. Now with equity schemes bearing the brunt of the equity market fall there is a sudden rush towards something less volatile that does not crash at the slightest opportunity.

Favourable conditions

There have also been some favourable conditions over the past several months that have translated to good returns for the debt oriented schemes.

There was a period of softening of rates and this led to a push in the returns for these schemes for some time. Now with influence of inflation again on the rise, there is a chance that things could get tough. Overall, when there is performance to back up schemes then there is also an element of relief among investors.

Nature of scheme

There is a choice even among the types of schemes that can be selected by an investor.

Due to this reason a person should be able to make the distinction clear because a different nature of the scheme will lead to a position where the result may also vary. If there is an income scheme then there is some risk involved in the process but when it comes to a fixed maturity plan then the risk equation also changes.

Time period

The time period for which the investor would like to make the investment also plays an important role in the selection process.

As long as the time period is specified, there is an element of comfort for the investor because they are then able to choose the route according to what they require.

This is a vital point in ensuring that there is some match between what is being done and what is the actual requirement.

The author is a certified financial planner

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