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Mar 2023
3 mins read
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5 Factors to Help You Choose Debt Fund

With their relatively lower volatility compared to equity asset class and regular income-generating potential, debt mutual funds are ideal for conservative investors. These schemes invest your money in securities like treasury bills, corporate bonds, commercial papers, government securities and other money market instruments which have the potential to deliver comparatively stable returns.
But with so many options to choose from, how do you pick the debt funds? Focus on these 7 fundamentals among other factors:
1

Average Maturity / Modified Duration

The various instruments or securities held by a debt mutual fund have different maturities. For goal-based investing, it is essential to check the average maturity or modified duration of the scheme to ensure that it aligns with your investment horizon and objective.

point 1
2

Portfolio Credit Quality

The debt securities held by a debt mutual fund are labelled by rating agencies based on their credit quality. There are different rating categories like AAA, AA+, A1+ etc., with AAA signifying the lowest credit risk and highest quality for corporate bonds.

point 2
3

Yield-to-Maturity

The Yield-to-Maturity (YTM) indicates the pre-tax returns a debt fund can generate if certain presumptions (primarily related to the fund duration and credit quality) are met. For instance, if the YTM of a scheme is 6%, but the corporate bond held by the scheme is downgraded, it might not deliver 6% returns.

point 3
4

Assets Under Management

Assets Under Management (AUM) refer to the total amount of money invested in a mutual fund scheme by all the investors. A minimum threshold can possibly ensures better liquidity management.

point 4
5

Scheme Performance Against Benchmark

The performance of a debt mutual fund against its benchmark can help you assess the overall record of the scheme since its inception.

point 5

When analysing debt mutual funds, focus on the above mentioned fundamentals among other factors to help you choose a scheme with the returns potential commiserate with your investment objective and risk appetite.

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PGIM India Asset Management Private Limited
(CIN - U74900MH2008FTC187029)
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The information contained herein is provided by PGIM India Asset Management Private Limited (the AMC) on the basis of publicly available information, internally developed data and other third-party sources believed to be reliable. However, the AMC cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance* (or such earlier date as referenced herein) and is subject to change without notice. The AMC has no obligation to update any or all of such information; nor does the AMC make any express or implied warranties or representations as to its completeness or accuracy. There can be no assurance that any forecast made herein will be actually realized. These materials do not take into account individual investor's objectives, needs or circumstances or the suitability of any securities, financial instruments or investment strategies described herein for particular investor. Hence, each investor is advised to consult his or her own professional investment / tax advisor / consultant for advice in this regard. The information contained herein is provided on the basis of and subject to the explanations, caveats and warnings set out elsewhere herein. The views of the Fund Manager should not be construed as an advice and investors must make their own investment decisions regarding investment/ disinvestment in securities market and/or suitability of the fund based on their specific investment objectives and financial positions and using such independent advisors as they believe necessary.
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