InvestorQ : How big a risk is the lockdown for debt funds? I am holding a large portfolio of debt funds and want to know if I should exit now?
indhumathi Sayani made post

How big a risk is the lockdown for debt funds? I am holding a large portfolio of debt funds and want to know if I should exit now?

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shrinidhi Rajan answered.
12 months ago
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As the massive closure of businesses threatens the solvency of many Indian companies and their ability to sustain, the question is what happens to their debt. More importantly, what happens to the debt funds that are invested in these bonds? Credit analysts believe that restrictions on businesses have steadily increased and may impact profits and debt servicing ability. In the case of debt funds, the credit risk is highest in funds that buy low-grade corporate bonds and the lowest in funds that buy only government securities. Though credit risk funds carry the highest degree of credit risk, other types of debt fund categories also own such bonds that may come under stress. Debt funds are already facing problems with the bonds of defaulting companies like IL&FS, Dewan Housing, Jet Airways, Cox & Kings, Reliance ADAG and Yes Bank. This lockdown further destabilizes the credit environment. If the real economy suffers, there will be defaults across the board. Even a blue chip like HDFC Bank fell by 35% on concerns about its exposure to unsecured consumer lending.

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