I want to keep some money in a Debt Mutual fund,as they are less risky and i can withdraw the money at any time
Question is :
is it right time to invest into debt funds?
As interest rates are already at peak ?
how return is given ? say as interest rate today is around 9%, so if i invest some money today will i be getting 9% something return after one year or it depends on interest rate at the time of withdrawal.

## 2 Replies to “About Debt Mutual Fund?”

1. PrivateBanker says:

Given low current interest rates, debt funds are quite risky right now. Keep in mind that price and yield move in opposite directions when it comes to bonds. When interest rates rise, the value of the bonds will fall.

Here’s a simplified example:
Originally you buy \$ 1000 bond at par, paying 9%.(Important! This assumes the current market interest rate is 9%!) You get \$ 90 in cash flow per year. Now let’s say the prevailing market interest rate rises to 10%. Your bond still only pays you \$ 90, but in order for this \$ 90 to be the equivalent yield of 10%, the market value of your bond will fall, such that \$ 90/0.10 = \$ 900 is the new market value of the bond. If market rates fall, say to 8%, you still only get \$ 90 cash flow, but the value of the bond is now \$ 90/0.08 = \$ 1,125.

Since interest rates are so low right now, not only will your yield be low, but also, pretty much the only direction for interest rates to go is up!….decreasing the value of the bonds you hold.

Your yield on a bond fund is not fixed. It will change in response to changes in market interest rates. BTW the riskier the underlying asset (bond – i.e the lower the bond rating) the higher the interest the bond must pay. A bond fund paying 9% is most likely loaded with near-junk bonds. In that case, you have significant default risk.

My advice? Invest in dividend paying stocks, or growth stocks that you can hold for the long-term.

2. Amarjeet Sharma says:

A Debt Mutual fund is a type of mutual fund that is designed especially for the low risk investor whose main aim is capital preservation coupled with decent returns on investment. These are for investors who prefer funds with lesser volatility, who want a regular income and are willing to late little or very limited risk. Similar to the interest that banks offer us on our deposits, debt funds also earn a regular interest from the fixed income securities they are invested in. This income gets added to the debt fund on a regular basis. This income would be shared with us, thereby providing us with regular income for more information visit www,nsebse.com.