Every time debt mutual funds face credit risk – a sharp drop in NAV due to the credit rating downgrade of a bond – investors get spooked. Credit risk is part and parcel of fixed income and debt mutual fund investing and one cannot run away from it. However, after the SEBI categorization rules, I…

After the IL&FS bond downgrade, it should be clear to all debt mutual fund investors that a high credit rating does not mean much. Even a small degrade will affect the NAV. While I am firm of the opinion that such credit risk NAV falls are part and parcel of debt mutual fund investing, many…

Last weekend, rating agency ICRA downgraded bonds of Infrastructure Leasing and Financial Services (IL&FS) . The long-term bond ratings went from AA(+) to BB. That is a huge downgrade! We need to stop and count this! AA(+) –> AA –> AA(-) –> A(+) –> A –> A(-) –> BBB(+) –> BBB –> BBB(-) —> BB(+) —> BB….

A fixed deposit is one of the simplest instruments to understand. However, make the FD tradeable mid duration then all sorts of complications will arise. You will lose money if you try and sell when interests increase or if the bank suffers financial trouble and drops in credit ratings. It is no secret that debt…

SEBI’s Mutual Fund Scheme Categorization requires fund houses to use a term known as Macaulay Duration to differentiate among debt mutual funds. Here is a simple explanation of what is Macaulay Duration and the more important modified duration and why you need to understand their significance if your mutual fund invests in bonds (debt mutual…

Debt mutual funds are not easy products to understand. The moment a bond can be traded in the middle of a tenure, the risk associated with it are often not obvious.  Regular readers would be aware that I have discussed this at length. To compound matters further, it is very hard to spot mutual fund…

Anirban Ghosh had posted his analysis of a debt mutual fund at Facebook Group, Asan Ideas for Wealth (AIFW). When I requested him to write an account of how he selected his first debt mutual fund, he readily agreed.  Anirban’s data crunching has unearthed an interesting mutual fund with a curious strategy and is the…

Franklin India Savings Plus Fund can be classified as an ultra-short term debt mutual fund that invests predominantly in floating rate bonds (to minimise interest rate sensitivity) of reasonably good credit quality, making it a reasonable candidate for first-time debt mutual fund investors to consider. In this post, I look at the main characteristics of…

Many Investors, especially senior citizens, who purchased long term gilts funds (or their cousins, dynamic bond funds) after seeing recent double-digit returns, are puzzled and even worried about why these funds are falling since the last three months. In this post, I discuss the reasons behind this and how to make sense of debt fund…