Getty ImagesUnnerved by the recent spate of downgrades and threat of defaults in the debt mutual fund space, many conservative investors are contemplating shifting to 'safer' bank deposits, say some mutual fund advisors. Spooked by the IL&FS default and downgrades of Zee and DHFL papers recently, some debt mutual fund investors, especially short-term investors, are asking whether it makes sense to shift money to bank fixed deposits, say advisors.
“We are seeing a trend where debt investors, especially short-term investors who have invested for less than three years, want to shift to fixed deposits due to the safety concern as there is no tax differential between the two when it comes to short term gains,” says Saurabh Mittal, founding partner, Circle Wealth Advisors.
Some mutual fund advisors say the new breed of DIY or 'direct' investors are the worst hit by the recent series of negative news flow in the debt market. “Investors read everything that comes in media. Those investing through advisors are able to clarify with their advisors, but DIY investors sometimes are unable to decipher the information,” says M.S. Shabbir, Founder and Managing Director of SenSage Financial Service.
As for the investors' flight to safety, mutual fund advisors give a thumbs down. One, they point out that it is wrong to compare debt mutual funds with bank deposits as they are totally different products. Also, the timing is wrong, especially after the Reserve Bank of India surprised the market with a rate cut on Thursday.
“Mutual funds are pass through instruments which invest on behalf of investors. Just like they pass on the profits, if an investment goes bad, it will be passed on to investors. Whereas in bank deposits, even if they are facing NPA issues, none of the depositor had to take a haircut until and unless that bank gets bankrupt,” says Pankaj Pathak, Head-fixed income, Quantum AMC.
Mutual fund advisors say investors should not take investment decisions in a hurry. “Investors should not take any decision in haste. Debt funds have their own set of risk. An advisor can help investors understand the suitability of a debt category to the investor," says Shabbir. "For an instance, credit risk funds carry the risk of defaults and downgrades because they invest in low rated papers," he adds.
Mutual fund advisors point out that the basic premise of investing in debt mutual funds is that they can offer marginally higher returns than bank deposits, especially if you are investing for more than three years because of favourable taxation. That still holds true, they say. However, investors should assure that they are choosing schemes that matches their investment horizon and risk profile, they add.
Debt mutual funds have offered CAGR returns between 6.90 per cent and 9.03 per cent over a period of three years. Whereas SBI is offering an interest of 6.80 per cent (7.30 per cent to senior citizens) on its 3-year deposits.
“We are seeing a trend where debt investors, especially short-term investors who have invested for less than three years, want to shift to fixed deposits due to the safety concern as there is no tax differential between the two when it comes to short term gains,” says Saurabh Mittal, founding partner, Circle Wealth Advisors.
Some mutual fund advisors say the new breed of DIY or 'direct' investors are the worst hit by the recent series of negative news flow in the debt market. “Investors read everything that comes in media. Those investing through advisors are able to clarify with their advisors, but DIY investors sometimes are unable to decipher the information,” says M.S. Shabbir, Founder and Managing Director of SenSage Financial Service.
As for the investors' flight to safety, mutual fund advisors give a thumbs down. One, they point out that it is wrong to compare debt mutual funds with bank deposits as they are totally different products. Also, the timing is wrong, especially after the Reserve Bank of India surprised the market with a rate cut on Thursday.
“Mutual funds are pass through instruments which invest on behalf of investors. Just like they pass on the profits, if an investment goes bad, it will be passed on to investors. Whereas in bank deposits, even if they are facing NPA issues, none of the depositor had to take a haircut until and unless that bank gets bankrupt,” says Pankaj Pathak, Head-fixed income, Quantum AMC.
Mutual fund advisors say investors should not take investment decisions in a hurry. “Investors should not take any decision in haste. Debt funds have their own set of risk. An advisor can help investors understand the suitability of a debt category to the investor," says Shabbir. "For an instance, credit risk funds carry the risk of defaults and downgrades because they invest in low rated papers," he adds.
Mutual fund advisors point out that the basic premise of investing in debt mutual funds is that they can offer marginally higher returns than bank deposits, especially if you are investing for more than three years because of favourable taxation. That still holds true, they say. However, investors should assure that they are choosing schemes that matches their investment horizon and risk profile, they add.
Debt mutual funds have offered CAGR returns between 6.90 per cent and 9.03 per cent over a period of three years. Whereas SBI is offering an interest of 6.80 per cent (7.30 per cent to senior citizens) on its 3-year deposits.
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