It would not be wayward statement to write that debt funds are also sensitive to weakening of credit rating of the issuer and this is especially in the case of non-government debt. As an investor, you should be completely aware of the prominent risks factors involved in debt funds prior and plan put modern and easy to go strategies. Once the investor puts forth right strategies in place with the debt funds, things will work according to their benefits.
If you
are seriously thinking on making the investments in the debt funds, probably,
you should look forward to bonds, commercial papers, certificates of deposit
and treasury bills. Such types of instruments are safer than if you are
directly investing into the equities, but then again, these are not completely
free from market risks by any means. With the basic information on the debt
funds and investment strategies in place, let’s discuss on the prominent
strategies for investing in the debt funds.
Strategy - 1
Duration Management- It is in fact a reliable debt management strategy
which actually involves the process of altering the average duration of bonds
for the prospects of investing. Duration is defined as the calibration of
sensitivity of any kind debt instrument, with regard to the changes in interest
rates. In general, the trend would mean that more is the duration, greater will
be the sensitivity, and vice versa.
Strategy - 2
Credit Selection- This type of debt fund strategy brings in the
confidence in the investor to make the investment in debt instruments in the
expectation of deviations in their credit rating. In the situation where there
is an increase in the credit rating of the debt instrument will give rise in
its price and as the result of which there are for the enhance of the returns.
Here in this strategy, the role of fund manager is very important as he will
analyze the credit quality of the debt instrument before you actually move
forward and invest.
Strategy - 3
Buy and Hold- Buy and Hold is also known as the passive debt
management strategy and is undertaken under the professional guidance of the
fund manager. The fund manager will guide investor to invest in the high
yielding debt securities and holds them until the maturity period. This strategy
will hold well for as long as the interest rates will remain stable. In case
the interest rates increase the net asset value (NAV) will be seriously
affected.
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