Passive debt funds for investors

When you think of investment returns, the first thing that probably comes to mind is stocks. Their ability to create wealth is well known.

However, investors often miss out on two critical aspects of investing: risk and asset allocation. Not only can you lose your investment in stocks but the inherent volatility can make you a Nervous Nellie.

To avoid such outcomes, investors can allocate a portion of their investable funds to the debt asset class. Through this diversification, investors can enjoy relatively stable returns offered by such securities.

A low-cost way to add debt to your portfolio is passive debt funds. They simply track an underlying index and seek to generate returns as per that. They comprise index funds and exchange-traded funds/fund of funds.

An example of passive debt funds is target-maturity funds which account for a majority of the passive debt segment today (based on AUM data as of Sept 2023). These funds invest in bonds and come with a fixed maturity.

If investors hold these funds till maturity, they can expect to earn the indicative yields. With interest rates at their peak, investors can 'lock-in' a rate of return for themselves through these funds. Investors may ensure that their investment horizon matches the duration of the fund and there are no interim liquidity needs.

The views expressed here constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. The data/information/opinions are meant for general reading purposes only and are not meant to serve as a professional guide/investment advice for the readers. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. An investor education and awareness initiative by Mirae Asset Mutual Fund. All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (RMF). For further information on KYC, RMFs and procedure to lodge a complaint in case of any grievance, you may refer the Knowledge Center section available on the website of Mirae Asset Mutual Fund.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.