After the apex court of India dismissed a review petition on AGR dues filed by Vodafone Idea and Bharti Airtel, the mutual fund industry is staring at around Rs 3,400 crore worth of exposure that could see a default or markdown impacting the net asset values (NAV) of funds invested in these papers. This has come in the wake of an already tumultuous year for bond fund investors.
The year 2019 was a crude shock for many bond fund investors as it almost lost its ‘less volatile’ tag. We saw huge volatility in the bond market due to corporate events that adversely impacted the returns of the bond funds. There were a couple of bond funds that saw their NAV dropping in excess of 40 percent in just 12 months. Besides, there were even funds that went down by 20 percent in the last year. Most of these funds are from ‘corporate bond’, ‘credit risk’ or ‘short duration’ category.
In India, retail investors already have lower exposure to bond funds, which makes for about 30 percent of their portfolio. Of this, 24 percent is in debt funds and the rest 6 percent is in the liquid or money market fund. One of the reasons for such lower exposure to debt fund is due to their lower returns in the long run compared to equity dedicated funds. Besides, there is very little clarity on the part of investors about how to use debt instruments in their portfolio. The latest credit events have only dented the sentiments of investors towards debt funds.
With this background, a prudent debt portfolio construction and risk management assumes prime importance for a better investing experience and get the most out of a bond portfolio that will help you to achieve your financial objectives.
Building a Debt Portfolio
Esta historia es de la edición February 3, 2020 de Dalal Street Investment Journal.
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Esta historia es de la edición February 3, 2020 de Dalal Street Investment Journal.
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