Mutual Funds

Why debt mutual funds are better in such a Covid-19 situation?

Answer

3 years ago

Debt fund is basically an investment in a variety of fixed income instruments such as government bonds, treasury bills, certificate of deposit, commercial paper, money market instruments, and corporate instruments.

Any lower hit or crash in the equity market would not impact debt funds much as there is already a lot of volatility in the market. Investing in debt funds is good during COVID-19 situations because these funds are generally not impacted by the market fluctuations which makes them more reliable investment options under volatile markets.

However, it is also true that during a slowdown in the economy, the capability of the company to meet out its debt gets reduced and they face problems to meet their obligations. Even the highest-rated companies are downgraded during this phase, which leads to a reduction in the value of these bonds.

So before investing, consult with your fund manager and choose funds that are suitable for your portfolio and goals.

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