Debt Mutual Funds

Are Debt Mutual Funds Safe To Invest?

As an investor, you must be worried about the recent crisis with Franklin Templeton’s AMC decision to wind up 6 debt funds. Now investors are stuck big time in these funds if they had invested with a viewpoint of short term investment or to get that extra profits compared to other debt funds. Always choose carefully when capital is of utmost importance and need them in a short period. Funds which got winded up

  1. Franklin India Low Duration Fund
  2. Franklin India Ultra Short Bond Fund
  3. Franklin India Short Term Income Plan
  4. Franklin India Credit Risk Fund
  5. Franklin India Dynamic Accrual Fund
  6. Franklin India Income Opportunities Fund

Franklin has stopped SIP/STP or one time investments and withdrawals from all the above funds. All these funds were holding bonds/commercial papers and other assets which were riskier in nature to earn that extra profits for investors.

What happens to my money invested in these funds?

Franklin Templeton will start liquidating their assets once the situation stabilizes and start paying lenders and unitholders, they will wait for the maturity of all the bonds and commercial papers they have held till date. The decision was taken considering the best interests of the investors.

Yes, debt mutual funds have to be examined before you invest in any of them, these years the treatment they got as safe funds is untrue unless they are holding to good assets that can be sold or brought into bad situations as well. Next, you might be thinking about how will a retail investor get to know which are best suited.

If you are looking for a short term (7-120 days) go for liquid funds where risk is lesser as compared to short or low duration funds. I have been investing with Scripbox for the last 4 years and they take care of risk and returns of all their recommended funds.

Debt funds are good if chosen well, else there is always a risk attached to investments made anywhere. You need to understand the underlying risk your willing to take. Let me know if you have any questions or suggestions.