5 Factors to Help You Choose Debt Fund
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.
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.
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.
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.
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.
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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