{"id":78086,"date":"2026-10-28T16:53:39","date_gmt":"2026-10-28T11:23:39","guid":{"rendered":"https:\/\/www.5paisa.com\/finschool\/?post_type=markets&#038;p=78086"},"modified":"2026-10-28T16:54:43","modified_gmt":"2026-10-28T11:24:43","slug":"how-to-analyse-debt-mutual-fund","status":"publish","type":"markets","link":"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/how-to-analyse-debt-mutual-fund\/","title":{"rendered":"How to Analyse Debt Mutual Fund"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"78086\" class=\"elementor elementor-78086\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-4be72f6 elementor-section-full_width tab_container elementor-section-height-default elementor-section-height-default\" data-id=\"4be72f6\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-d209c0c\" data-id=\"d209c0c\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-inner-section elementor-element elementor-element-896d102 elementor-section-full_width elementor-section-height-default elementor-section-height-default\" data-id=\"896d102\" data-element_type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-wide\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-50 elementor-inner-column elementor-element elementor-element-c9133f2 chapters_list\" data-id=\"c9133f2\" data-element_type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-aa101bd elementor-widget elementor-widget-shortcode\" data-id=\"aa101bd\" data-element_type=\"widget\" data-widget_type=\"shortcode.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t<div class=\"elementor-shortcode\">\t<script>\n\t\tjQuery(document).ready(function(){\n\t\t\tjQuery(\"#post_chapters a[href*='\" + location.pathname + \"']\")\n\t\t\t\t.addClass(\"current\")\n\t\t\t\t.attr(\"aria-current\", \"page\");\n\t\t})\n\t<\/script>\n\t<div class=\"desktop_chapters\"><div id=\"post_chapters\"><div class=\"post_chapters-heading\">Chapters<\/div><ul><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/background-and-orientation\/\">Background and Orientation<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/personal-finance-math\/\">Personal Finance Math<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/money-today-vs-money-tommorrow\/\">Money Today vs Money Tommorrow<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/the-retirement-part-1\/\">The Retirement -Part 1<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/assumptions-in-retirement-planning\/\">Assumptions in Retirement Planning<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/understanding-stock-funds\/\">The Role of Mutual Funds in Modern Finance<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/concept-of-fund-and-nav\/\">Concept of Fund and NAV<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/understanding-the-performance-of-your-fund\/\">Mutual Fund Factsheet<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/the-equity-scheme\/\"> The Equity Scheme<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/equity-scheme-part-2\/\">Equity Scheme Part 2<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/debt-funds-part-1\/\">Debt Funds Part 1<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/monitoring-your-portfolio\/\">Debt Funds Part 2<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/debt-funds-part-3\/\">Debt Funds Part 3<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/debt-funds-part-4\/\">Debt Funds Part 4<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/investing-in-bonds\/\">Investing in Bonds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/index-funds\/\">Index Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/arbitrage-funds\/\">Arbitrage Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/measuring-mutual-fund-returns\/\">Measuring Mutual Fund Returns<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/rolling-returns\/\">Rolling Returns<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-expense-ratio\/\">Mutual Fund Expense Ratio<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-benchmarking\/\">Mutual Fund Benchmarking<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-beta-sd-and-sharpe-ratio\/\">Mutual Fund Beta SD and Sharpe Ratio<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/sortino-and-capture-ratios\/\">Sortino and Capture Ratios<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/how-to-analyse-equity-mutual-funds\/\">How to Analyse Equity Mutual Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/how-to-analyse-debt-mutual-fund\/\">How to Analyse Debt Mutual Fund<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/mutual-fund-portfolio\/\">Mutual Fund Portfolio<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/smart-beta-funds\/\">Smart Beta Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/asset-allocation\/\">Asset Allocation<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/exchange-traded-funds\/\">Exchange Traded Funds<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/basics-of-macro-economics\/\">Basics of Macro Economics<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/personal-finance-part-1\/\">Personal Finance-Part 1<\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/personal-finance-review-part-2\/\">Personal Finance Review Part 2 <\/a><\/li><li><i class=\"fa fa-chevron-right\" aria-hidden=\"true\"><\/i>&nbsp;&nbsp;&nbsp;<a href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/know-your-funds\/\">Know Your Funds<\/a><\/li><\/ul><\/div><\/div><div 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class=\"eael-tabs-nav \">\n                <ul class=\"eael-tab-inline-icon\" role=\"tablist\">\n                                            <li id=\"study\" class=\"active-default eael-tab-item-trigger eael-tab-nav-item\" aria-selected=\"true\" data-tab=\"1\" role=\"tab\" tabindex=\"0\" aria-controls=\"study-tab\" aria-expanded=\"false\">\n                            \n                                                                <i class=\"far fa-edit\"><\/i>                                                            \n                                                            <span class=\"eael-tab-title title-after-icon\" >Study<\/span>                            \n                                                    <\/li>\n                                            <li id=\"slides\" class=\" eael-tab-item-trigger eael-tab-nav-item\" aria-selected=\"false\" data-tab=\"2\" role=\"tab\" tabindex=\"-1\" aria-controls=\"slides-tab\" aria-expanded=\"false\">\n                        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     <\/li>\n                    \n                                  <\/ul>\n            <\/div>\n            \n            <div class=\"eael-tabs-content\">\n\t\t        \n                    <div id=\"study-tab\" class=\"clearfix eael-tab-content-item active-default\" data-title-link=\"study-tab\">\n\t\t\t\t        <p><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash=' Why-Good-Doesn\u2019t-Mean-Right' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong><b>25.1 Why \u201cGood\u201d Doesn\u2019t Mean \u201cRight\u201d<\/b><\/strong><\/h2>\r\n<p><img fetchpriority=\"high\" decoding=\"async\" class=\"aligncenter wp-image-78004 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Good-Doesnt-Mean-Right.png\" alt=\"Good Doesnt Mean Right\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Good-Doesnt-Mean-Right.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Good-Doesnt-Mean-Right-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Good-Doesnt-Mean-Right-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Good-Doesnt-Mean-Right-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Good-Doesnt-Mean-Right-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Good-Doesnt-Mean-Right-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Good-Doesnt-Mean-Right-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Good-Doesnt-Mean-Right-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>A mutual fund may look excellent on paper\u2014high returns, strong ratings, impressive alpha\u2014but that doesn\u2019t automatically mean it belongs in your portfolio. The real test is whether the fund aligns with your <strong><b>financial goals and time horizon<\/b><\/strong>.<\/p>\r\n<p>Think of funds like medicines: paracetamol works for fever but not for ligament tears. Similarly, a fund must be chosen for the right \u201csymptom\u201d (goal).<\/p>\r\n<p><strong><b>\u00a0Examples:<\/b><\/strong><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Emergency savings (0\u20136 months horizon):<\/b><\/strong>Liquidity and stability are critical. Even the best equity fund won\u2019t fit here because equity is volatile. Liquid funds or overnight funds are more appropriate.<\/li>\r\n<li><b><\/b><strong><b>Retirement (20+ years away):<\/b><\/strong>Equity funds make sense because you can ride out volatility and benefit from compounding.<\/li>\r\n<li><b><\/b><strong><b>Child\u2019s education (10 years away):<\/b><\/strong>A balanced approach\u2014equity for growth, debt for stability. Hybrid funds or balanced advantage funds are suitable.<\/li>\r\n<li><b><\/b><strong><b>Vacation (2 years away):<\/b><\/strong>Debt funds or fixed deposits are safer; equity exposure is risky.<\/li>\r\n<\/ul>\r\n<p><strong><b>Table: Goal vs Suitable Fund Type<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Goal<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Time Horizon<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Suitable Fund<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Unsuitable Fund<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Emergency savings<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Immediate<\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Liquid Fund<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Equity Fund<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Retirement<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>20+ years<\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Equity Fund<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Liquid Fund<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Child\u2019s education<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>10 years<\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Hybrid Fund<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Sector Fund<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Vacation<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>2 years<\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Short-term Debt Fund<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Small-cap Fund<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>\u00a0A \u201cgood\u201d fund is not universally right. Portfolio construction must be <strong><b>goal-driven, not performance-driven<\/b><\/strong>.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash='Risks-in-Debt-Funds' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong><b>25.2 Risks in Debt Funds<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-78005 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Risk-in-Debt-Funds.png\" alt=\"Risk in Debt Funds\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Risk-in-Debt-Funds.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Risk-in-Debt-Funds-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Risk-in-Debt-Funds-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Risk-in-Debt-Funds-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Risk-in-Debt-Funds-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Risk-in-Debt-Funds-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Risk-in-Debt-Funds-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Risk-in-Debt-Funds-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Debt funds are often perceived as \u201csafe,\u201d but they carry multiple risks. Understanding these risks is crucial before investing.<\/p>\r\n<p><strong><b>Types of Risks:<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Risk Type<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Explanation<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Example<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Credit risk<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Company defaults on interest\/principal<\/p>\r\n<\/td>\r\n<td>\r\n<p>A company issues 9% bonds but fails to pay<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Credit rating risk<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Rating agencies downgrade bonds<\/p>\r\n<\/td>\r\n<td>\r\n<p>AAA downgraded to AA \u2192 NAV falls<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Interest rate risk<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Bond prices fall when rates rise<\/p>\r\n<\/td>\r\n<td>\r\n<p>RBI hikes rates \u2192 NAV drops<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Liquidity risk<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Difficulty selling bonds in stressed markets<\/p>\r\n<\/td>\r\n<td>\r\n<p>AMC struggles to meet redemptions<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Reinvestment risk<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Coupons reinvested at lower rates<\/p>\r\n<\/td>\r\n<td>\r\n<p>Falling interest rate cycle<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Concentration risk<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Heavy exposure to one issuer<\/p>\r\n<\/td>\r\n<td>\r\n<p>10% allocation to a single corporate bond<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Additional Data:<\/b><\/strong><\/p>\r\n<ul>\r\n<li>In 2018, the IL&amp;FS default triggered a credit crisis in debt funds, leading to sharp NAV markdowns in schemes that held its paper.<\/li>\r\n<li>In April 2020, Franklin Templeton wound up six debt schemes due to liquidity stress; investors got their money back in instalments over the following years.<\/li>\r\n<\/ul>\r\n<p>Debt funds are safer than equity but not risk-free. They require careful analysis of credit quality, maturity, and diversification.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide03' class='sa_hover_container' data-hash='Portfolio-Check' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong><b>25.3 Portfolio Check\u00a0<\/b><\/strong><\/h2>\r\n<p><img decoding=\"async\" class=\"aligncenter wp-image-78006 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Porfolio-Check.png\" alt=\"Porfolio Check\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Porfolio-Check.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Porfolio-Check-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Porfolio-Check-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Porfolio-Check-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Porfolio-Check-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Porfolio-Check-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Porfolio-Check-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Porfolio-Check-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Let\u2019s analyze a short-term debt fund with an average maturity of about 2.3 years.<\/p>\r\n<p><strong><b>Portfolio Composition:<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Category<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Fund Allocation<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Category Average<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Implication<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Sovereign bonds<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>14%<\/p>\r\n<\/td>\r\n<td>\r\n<p>28%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Lower safety cushion<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>AAA corporate bonds<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>66%<\/p>\r\n<\/td>\r\n<td>\r\n<p>47%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Higher corporate exposure<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>AA\/A bonds<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>8.5%<\/p>\r\n<\/td>\r\n<td>\r\n<p>15%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Moderate risk<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Cash equivalents<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>11%<\/p>\r\n<\/td>\r\n<td>\r\n<p>10%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Higher liquidity<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>This shows the fund leans more on AAA corporate bonds and less on sovereign bonds than its peers, which raises its credit exposure compared with a gilt\u2011heavy portfolio; its holding of lower\u2011rated (AA\/A) paper, however, is below the category average.<\/p>\r\n<p><strong><b>Concentration Example:<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Issuer<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Exposure %<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Reliance Industries<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>5.6%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>NHB<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>5.2%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>PFC<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>5.1%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>An exposure above about 5% to a single issuer deserves scrutiny. SEBI caps a debt scheme\u2019s exposure to a single issuer at 10% of NAV for AAA\u2011rated paper, 8% for AA and 6% for A and below (extendable by 2% with trustee approval). Diversification across many issuers reduces risk.<\/p>\r\n<p><strong><b>\u00a0Analysis:<\/b><\/strong><\/p>\r\n<ul>\r\n<li>If Reliance defaults, 5.6% of NAV is at risk.<\/li>\r\n<li>If multiple issuers face stress simultaneously, redemption pressure can magnify losses.<\/li>\r\n<\/ul>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide04' class='sa_hover_container' data-hash=' Other-Checks' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong><b>25.4 Other Checks<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-78007 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Other-Checks.png\" alt=\"Other Checks\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Other-Checks.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Other-Checks-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Other-Checks-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Other-Checks-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Other-Checks-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Other-Checks-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Other-Checks-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Other-Checks-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Beyond portfolio composition, other metrics help judge stability:<\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Metric<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Fund Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Category Avg.<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Interpretation<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Modified Duration<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>1.97<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.34<\/p>\r\n<\/td>\r\n<td>\r\n<p>Less sensitive to rate changes<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Average Maturity<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>2.28 yrs<\/p>\r\n<\/td>\r\n<td>\r\n<p>2.89 yrs<\/p>\r\n<\/td>\r\n<td>\r\n<p>Lower rate risk<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Yield to Maturity (YTM)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>4.6%<\/p>\r\n<\/td>\r\n<td>\r\n<p>5.2%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Slightly lower yield, less risk chasing<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>AUM<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b9650 Cr<\/p>\r\n<\/td>\r\n<td>\r\n<p>Higher<\/p>\r\n<\/td>\r\n<td>\r\n<p>Small size, may face liquidity issues<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Expense Ratio<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>0.65%<\/p>\r\n<\/td>\r\n<td>\r\n<p>0.80%<\/p>\r\n<\/td>\r\n<td>\r\n<p>Slightly lower cost<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Additional Data Points:<\/b><\/strong><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Rolling Returns: <\/b><\/strong>Check 3-year and 5-year rolling returns for consistency.<\/li>\r\n<li><b><\/b><strong><b>Credit Quality Trend: <\/b><\/strong>Monitor if the fund is gradually increasing exposure to lower-rated bonds.<\/li>\r\n<li><b><\/b><strong><b>Peer Comparison: <\/b><\/strong>Compare YTM vs risk across similar category funds. (The YTMs in the table above are from a low\u2011interest\u2011rate period; always compare a fund with its current category average.)<\/li>\r\n<\/ul>\r\n<p><strong><b>Yield vs Risk:<\/b><\/strong>\u00a0 Funds with very high YTM compared to peers often take excessive risk. A balanced YTM indicates prudent management.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide05' class='sa_hover_container' data-hash='Key-Takeaways ' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong><b>\u00a025.5 Key Takeaways<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-76118 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png\" alt=\"Key Takeaways\" width=\"444\" height=\"418\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png 444w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-300x282.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-50x47.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-100x94.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-150x141.png 150w\" sizes=\"(max-width: 444px) 100vw, 444px\" \/><\/p>\r\n<ol>\r\n<li><b><\/b><strong><b>Goal Alignment:<\/b><\/strong>Choose funds based on financial goals, not just quality. A top-rated equity fund is useless for emergency savings.<\/li>\r\n<li><b><\/b><strong><b>Debt Fund Risks:<\/b><\/strong>Debt funds carry credit risk, interest rate risk, rating risk, liquidity risk, reinvestment risk, and concentration risk.<\/li>\r\n<li><b><\/b><strong><b>Portfolio Composition:<\/b><\/strong>Match investment horizon with average maturity. Short-term goals need short-duration funds; long-term goals can use longer maturities.<\/li>\r\n<li><b><\/b><strong><b>Concentration Risk:<\/b><\/strong>Avoid heavy exposure to one issuer. Even AAA-rated companies can face stress.<\/li>\r\n<li><b><\/b><strong><b>Yield vs Risk:<\/b><\/strong>Use YTM as a risk indicator, not just a return metric. Very high YTM often signals hidden credit risk.<\/li>\r\n<li><b><\/b><strong><b>Fund Size:<\/b><\/strong>Avoid funds that are too small (liquidity issues) or too large (difficulty in nimble management).<\/li>\r\n<li><b><\/b><strong><b>Consistency: <\/b><\/strong>Look at rolling returns, capture ratios, and risk metrics across multiple years to judge stability.<\/li>\r\n<li><b><\/b><strong><b>Expense Ratio: <\/b><\/strong>Lower expense ratios improve net returns, especially in debt funds where margins are thin.<\/li>\r\n<li><b><\/b><strong><b>Peer Benchmarking: <\/b><\/strong>Always compare a fund\u2019s metrics against category averages to spot aggressive or conservative positioning.<\/li>\r\n<\/ol>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = jQuery('#text_slider');\n\t\tjQuery('.text_slider_goto1').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 0);\n\t\t});\n\t\tjQuery('.text_slider_goto2').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 1);\n\t\t});\n\t\tjQuery('.text_slider_goto3').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 2);\n\t\t});\n\t\tjQuery('.text_slider_goto4').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 3);\n\t\t});\n\t\tjQuery('.text_slider_goto5').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 4);\n\t\t});\n\t\tvar resize_77916 = jQuery('.owl-carousel');\n\t\tresize_77916.on('initialized.owl.carousel', function(e) {\n\t\t\tif (typeof(Event) === 'function') {\n\t\t\t\twindow.dispatchEvent(new Event('resize'));\n\t\t\t} else {\n\t\t\t\tvar evt = window.document.createEvent('UIEvents');\n\t\t\t\tevt.initUIEvent('resize', true, false, window, 0);\n\t\t\t\twindow.dispatchEvent(evt);\n\t\t\t}\n\t\t});\n\t});\n<\/script>\n<\/p><p>\u00a0<\/p>                    <\/div>\n\t\t        \n                    <div id=\"slides-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"slides-tab\">\n\t\t\t\t        <p><div class='white' style='background:rgb(255, 255, 255); border:solid 0px rgb(255, 255, 255); border-radius:0px; padding:0px 0px 0px 1px;'>\n<div id='text_slider' class='owl-carousel sa_owl_theme owl-pagination-true' data-slider-id='text_slider' style='visibility: visible;visibility:visible;'>\n<div id='text_slider_slide01' class='sa_hover_container' data-hash='Why-talk-about-bonds-now?' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>15.1 <\/strong><strong><b>Why talk about bonds now?<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77926 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Why-Talk-About-Bonds-Now.png\" alt=\"Why Talk About Bonds Now\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Why-Talk-About-Bonds-Now.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Why-Talk-About-Bonds-Now-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Why-Talk-About-Bonds-Now-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Why-Talk-About-Bonds-Now-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Why-Talk-About-Bonds-Now-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Why-Talk-About-Bonds-Now-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Why-Talk-About-Bonds-Now-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Why-Talk-About-Bonds-Now-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>We have just finished exploring debt mutual funds, which are essentially baskets of bonds managed by professionals. Before moving on to index funds, it makes sense to pause and understand bonds themselves. After all, debt funds are nothing but a collection of bonds, and if fund managers can buy them directly, so can you. Today, investors don\u2019t need to rely only on mutual funds, there are stock exchanges, SEBI\u2011registered Online Bond Platform Providers (OBPPs) and, for government securities, RBI Retail Direct, all of which allow individuals to purchase bonds directly, much like buying shares. Understanding bonds at this stage helps you see the mechanics behind debt funds and gives you the option to invest without an intermediary.<\/p>\r\n<p>Debt mutual funds are essentially collections of bonds. By learning bonds directly, you understand what fund managers are doing behind the scenes.<\/p>\r\n<p><strong><b>Example:<\/b><\/strong><\/p>\r\n<ul>\r\n<li>A debt fund like HDFC Corporate Bond Fund invests in PSU bonds such as Power Finance Corporation (PFC).<\/li>\r\n<li>As an individual, you can also buy listed PFC bonds directly on NSE\/BSE through your broker, or through a SEBI\u2011registered online bond platform.<\/li>\r\n<\/ul>\r\n<p>This means you can bypass the AMC if you want more control, though you\u2019ll lose professional management.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide02' class='sa_hover_container' data-hash=' Looking-at-bonds-before-investing' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2><strong><b>15.2 <\/b><\/strong><strong><b>Looking at bonds before investing<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77927 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Looking-at-Funds-Before-Investing.png\" alt=\"Looking at Funds Before Investing\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Looking-at-Funds-Before-Investing.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Looking-at-Funds-Before-Investing-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Looking-at-Funds-Before-Investing-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Looking-at-Funds-Before-Investing-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Looking-at-Funds-Before-Investing-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Looking-at-Funds-Before-Investing-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Looking-at-Funds-Before-Investing-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Looking-at-Funds-Before-Investing-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Imagine you\u2019re browsing the stock exchange website and come across bonds issued by a government-backed company, say Power Finance Corporation (PFC). Each bond issue has a unique identification number called an ISIN, much like a fingerprint. Clicking on a bond reveals details such as whether it is tax-free, its credit rating, issue date, maturity date, coupon rate, and face value.<\/p>\r\n<p>For example, suppose a PFC bond carries a tax-free tag. This means the interest you earn annually is exempt from income tax, making it highly attractive for investors in higher tax brackets. Note that no new tax\u2011free bonds have been issued since 2015\u201316, so today they can be bought only in the secondary market on NSE\/BSE. However, if you sell the bond before maturity at a profit, that gain is taxable as capital gains. For listed bonds held for more than 12 months, long\u2011term capital gains are currently taxed at 12.5% without indexation; gains on bonds held for 12 months or less are taxed at your income\u2011tax slab rate. Next, you notice the <strong><b>credit rating<\/b><\/strong>\u2014say AAA from CRISIL. This rating signals that the issuer is extremely reliable in repaying its debt. Since PFC is a government-owned company (a Maharatna PSU under the Ministry of Power), so the risk of default is considered minimal, although its bonds are not explicitly guaranteed by the government.<\/p>\r\n<p>Other details matter too. If the bond is marked as secured, it means the issuer has pledged assets against the borrowing, similar to how banks secure car loans against the vehicle. This reduces risk further. You\u2019ll also see the issue date and maturity date\u2014perhaps issued in 2015 and maturing in 2030, making it a 15 year instrument. Finally, the coupon rate\u00a0tells you how much interest you\u2019ll earn annually based on the bond\u2019s face value. If the coupon is 7% and the face value is \u20b91,000, you\u2019ll receive \u20b970 per bond each year until maturity.<\/p>\r\n<p><strong><b>Looking at Bonds Before Investing<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Detail<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Meaning<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Example<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>ISIN<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Unique identifier for each bond issue.<\/p>\r\n<\/td>\r\n<td>\r\n<p>PFC bond ISINs begin with \u2018INE134E\u2019, PFC\u2019s issuer code.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Tax-Free Tag<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Interest exempt from income tax.<\/p>\r\n<\/td>\r\n<td>\r\n<p>NHAI Tax-Free Bonds (2015\u201316 issue).<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Credit Rating<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Reliability of issuer.<\/p>\r\n<\/td>\r\n<td>\r\n<p>AAA rating for PFC bonds.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Secured\/Unsecured<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Whether assets are pledged.<\/p>\r\n<\/td>\r\n<td>\r\n<p>REC secured bonds backed by receivables.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Issue &amp; Maturity Date<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Tenure of the bond.<\/p>\r\n<\/td>\r\n<td>\r\n<p>Issued 2015, maturing 2030 (15 years).<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Coupon Rate<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Annual interest on face value.<\/p>\r\n<\/td>\r\n<td>\r\n<p>7% coupon \u2192 \u20b970 per \u20b91,000 bond.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Example:<\/b><\/strong>\u00a0If you buy a PFC Tax-Free Bond (October 2015 issue, 15-year series, 7.52% retail coupon, AAA-rated), you\u2019ll receive tax-free interest every year until it matures in 2030. (The 10-year series of the same issue, with a 7.36% retail coupon, matured in 2025.)<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide03' class='sa_hover_container' data-hash='Yield-to-Maturity' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>15.3.<\/strong><strong><b>Yield to Maturity (YTM)<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77928 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Yield-to-Maturity.png\" alt=\"Yield to Maturity\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Yield-to-Maturity.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Yield-to-Maturity-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Yield-to-Maturity-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Yield-to-Maturity-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Yield-to-Maturity-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Yield-to-Maturity-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Yield-to-Maturity-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Yield-to-Maturity-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>While the coupon looks straightforward, the real measure of return is the Yield to Maturity (YTM). Think of it like buying a rental property. Suppose you buy a shop for \u20b950 lakh and rent it out for \u20b95 lakh per year. That\u2019s a 10% rental yield. But if you later sell the shop for the same \u20b950 lakh, your net yield remains 10%. If you bought it at \u20b955 lakh instead, your yield drops because your cost was higher. Conversely, if you bought it at \u20b945 lakh, your yield rises because you paid less for the same rent.<\/p>\r\n<p>Bonds work the same way. The coupon is fixed, but the price you pay for the bond changes in the market. If a bond with a \u20b91,000 face value and 7% coupon is trading at \u20b91,080, you still earn \u20b970 annually, but your effective yield is lower because you paid more upfront. On maturity, you\u2019ll only get back \u20b91,000, not the premium you paid. That\u2019s why YTM often differs from the coupon\u2014it reflects the actual return considering both interest payments and the difference between purchase price and redemption value.<\/p>\r\n<p><strong><b>Yield to Maturity (YTM)<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Scenario<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Bond Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Coupon (\u20b970)<\/b><\/strong><\/p>\r\n<\/td>\r\n<td width=\"368\">\r\n<p><strong><b>Current Yield (Coupon \u00f7 Price)<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Buy at Face Value<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,000<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b970<\/p>\r\n<\/td>\r\n<td width=\"368\">\r\n<p>7%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Buy at Premium<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,080<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b970<\/p>\r\n<\/td>\r\n<td width=\"368\">\r\n<p>~6.48%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Buy at Discount<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b9950<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b970<\/p>\r\n<\/td>\r\n<td width=\"368\">\r\n<p>~7.37%<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Example:<\/b><\/strong><\/p>\r\n<ul>\r\n<li>If you buy a REC bond at \u20b91,080, your yield drops below the coupon because you paid extra.<\/li>\r\n<\/ul>\r\n<p>If you buy at \u20b9950, your yield rises since you paid less for the same coupon. Note: the yields in the table are current yields (coupon \u00f7 price). The YTM moves even further in the same direction, because the \u20b980 premium is lost at maturity (pushing YTM below 6.48%), while the \u20b950 discount is gained at maturity (pushing YTM above 7.37%).<\/p>\r\n<h2 style=\"text-align: left\"><b><\/b><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77904 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Credit-Risk-Funds.png\" alt=\"Credit Risk Funds\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Credit-Risk-Funds.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Credit-Risk-Funds-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Credit-Risk-Funds-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Credit-Risk-Funds-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Credit-Risk-Funds-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Credit-Risk-Funds-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Credit-Risk-Funds-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/05\/Credit-Risk-Funds-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/h2>\r\n<p>Credit Risk Funds are the adrenaline junkies of the debt world. Their mandate is to invest at least 65% in lower-rated corporate bonds (AA and below, excluding AA+). These bonds pay higher interest because the issuers are riskier. The fund manager\u2019s bet is that the company will not default and may even improve its credit rating over time. If that happens, the bond price rises, boosting the fund\u2019s NAV along with the coupon income.<\/p>\r\n<p>Picture a landlord renting out property to a tenant with a shaky financial history. The tenant agrees to pay double the rent to compensate for the risk. If the tenant stabilizes his income, the landlord benefits both from the high rent and from the improved reputation of the property. But if the tenant defaults, the landlord suffers a heavy loss. That\u2019s exactly how credit risk funds operate.<\/p>\r\n<p>The danger lies in concentration. Even within SEBI\u2019s single-issuer limits (lower for lower-rated papers), some funds allocate large chunks to a single company. If that company defaults, the NAV can collapse overnight. For retail investors, this risk is unnecessary. Most personal financial goals\u2014retirement, education, home purchase\u2014can be achieved with safer debt categories. Credit Risk Funds are better left to institutional players who can absorb shocks. For individuals, avoiding them is the wiser choice.<\/p>\r\n<p>High ratings are no guarantee either. DHFL was rated AAA until early 2019, was downgraded as its troubles grew and defaulted in June 2019. The losses hit many debt schemes, not only credit risk funds, which is why every debt investor should check the quality of the papers in a portfolio.<\/p>\r\n<p><strong><b>Credit Risk Funds<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Aspect<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Explanation<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Example<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Mandate<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>At least 65% in bonds rated AA &amp; below (excluding AA+).<\/p>\r\n<\/td>\r\n<td>\r\n<p>Nippon India Credit Risk Fund (formerly Reliance Credit Risk Fund).<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>High Yield<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Lower-rated issuers pay higher interest.<\/p>\r\n<\/td>\r\n<td>\r\n<p>Bonds of stressed issuers such as DHFL traded at high yields before default.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Concentration Danger<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Large exposure to one issuer magnifies risk.<\/p>\r\n<\/td>\r\n<td>\r\n<p>DHFL default in 2019 caused sharp NAV markdowns.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Suitability<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Better for institutions, not retail investors.<\/p>\r\n<\/td>\r\n<td>\r\n<p>Affected schemes suffered sharp losses and side-pocketing.<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide04' class='sa_hover_container' data-hash='Accrued-Interest' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>15.4 .<\/strong><strong><b>Accrued Interest<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77929 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Accrued-Interest.png\" alt=\"Accrued Interest\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Accrued-Interest.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Accrued-Interest-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Accrued-Interest-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Accrued-Interest-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Accrued-Interest-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Accrued-Interest-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Accrued-Interest-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Accrued-Interest-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Now let\u2019s talk about accrued interest. Suppose a bond pays its annual coupon every 1st January. If you buy the bond in July, the seller has already held it for six months and earned half the year\u2019s interest. To be fair, you compensate the seller for that portion by paying a slightly higher price, which includes accrued interest. When January arrives, you\u2019ll receive the full coupon, even though you only held the bond for half the year. This adjustment ensures fairness between buyer and seller.<\/p>\r\n<p>In bond markets, the settlement price\u00a0(the amount you pay) includes accrued interest and is called the \u201cdirty price.\u201d The price excluding accrued interest is the \u201cclean price.\u201d For example, if the clean price is \u20b91,020 and six months of accrued interest on a 7% coupon is \u20b935, the dirty price you pay is \u20b91,055. This mechanism ensures that the seller is paid interest for the period they held the bond, and the buyer earns interest only for the period they hold it.<\/p>\r\n<p><strong><b>Accrued Interest<\/b><\/strong><\/p>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td>\r\n<p><strong><b>Term<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Meaning<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p><strong><b>Example<\/b><\/strong><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Clean Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Price excluding accrued interest.<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,020<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Accrued Interest<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Interest earned by seller till date.<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b935<\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><strong><b>Dirty Price<\/b><\/strong><\/p>\r\n<\/td>\r\n<td>\r\n<p>Settlement price (Clean + Accrued).<\/p>\r\n<\/td>\r\n<td>\r\n<p>\u20b91,055<\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<p><strong><b>Example:<\/b><\/strong><\/p>\r\n<ul>\r\n<li>A bond pays coupon every 1st January.<\/li>\r\n<li>You buy in July \u2192 seller already earned 6 months\u2019 interest.<\/li>\r\n<li>You pay <strong><b>dirty price <\/b><\/strong>(includes accrued interest).<\/li>\r\n<li>In January, you still receive full coupon (\u20b970).<\/li>\r\n<\/ul>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide05' class='sa_hover_container' data-hash='Should-You-Invest-in-Bonds' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>15.5 .<\/strong><strong><b>Should you invest in bonds?<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-77930 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Should-You-Invest-in-Bonds.png\" alt=\"Should You Invest in Bonds\" width=\"1080\" height=\"1080\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Should-You-Invest-in-Bonds.png 1080w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Should-You-Invest-in-Bonds-300x300.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Should-You-Invest-in-Bonds-1024x1024.png 1024w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Should-You-Invest-in-Bonds-150x150.png 150w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Should-You-Invest-in-Bonds-768x768.png 768w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Should-You-Invest-in-Bonds-50x50.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Should-You-Invest-in-Bonds-100x100.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2026\/10\/Should-You-Invest-in-Bonds-96x96.png 96w\" sizes=\"(max-width: 1080px) 100vw, 1080px\" \/><\/p>\r\n<p>Many investors lean heavily toward equities because of their growth potential. But market shocks\u2014like the sudden crash during the pandemic\u2014remind us that diversification is essential. When stock indices fell sharply, even many long-term SIPs briefly showed negative returns, leaving equity only investors exposed. Bonds, gold, and fixed deposits act as stabilizers in such times. They may not deliver spectacular returns, but they provide safety and predictable income.<\/p>\r\n<p>Today, you can build a portfolio using a mix of assets: equities for growth, mutual funds for diversification, bonds for stability, gold for inflation protection, and fixed deposits for liquidity. The right blend depends on your goals\u2014whether it\u2019s wealth creation, retirement planning, or capital preservation. Bonds deserve a place in that mix because they balance risk and return, ensuring your portfolio doesn\u2019t crumble during market downturns.<\/p>\r\n<p><strong><b>Should You Invest in Bonds?<\/b><\/strong><\/p>\r\n<p>Bonds stabilize portfolios during equity downturns.<\/p>\r\n<p><strong><b>Examples of Diversification:<\/b><\/strong><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Equities<\/b><\/strong>: Growth (Infosys, Reliance shares).<\/li>\r\n<li><b><\/b><strong><b>Bonds<\/b><\/strong>: Stability (PFC, NHAI tax-free bonds).<\/li>\r\n<li><b><\/b><strong><b>Gold<\/b><\/strong>: Inflation hedge.<\/li>\r\n<li><b><\/b><strong><b>FDs<\/b><\/strong>: Liquidity.<\/li>\r\n<\/ul>\r\n<p>During the COVID-19 crash (February\u2013March 2020), the Nifty 50 and Sensex fell about 38% from their January 2020 peaks. High-quality bonds and gilt funds cushioned portfolios, proving their stabilizing role.<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<div id='text_slider_slide06' class='sa_hover_container' data-hash='Key-Takeaways' style='padding:4.9% 5%; margin:0px 0%; background-color:rgb(255, 255, 255); min-height:405px; '><h2 style=\"text-align: left\"><strong>15.6.<\/strong><strong><b>Key takeaways<\/b><\/strong><\/h2>\r\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-76118 size-full\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png\" alt=\"Key Takeaways\" width=\"444\" height=\"418\" srcset=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4.png 444w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-300x282.png 300w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-50x47.png 50w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-100x94.png 100w, https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2022\/01\/Key-Takeaways-4-150x141.png 150w\" sizes=\"(max-width: 444px) 100vw, 444px\" \/><\/p>\r\n<ul>\r\n<li><b><\/b><strong><b>Tax-free bonds <\/b><\/strong>provide interest income exempt from tax (no new issues since 2015\u201316; they are available only in the secondary market).<\/li>\r\n<li><b><\/b><strong><b>PSU bonds <\/b><\/strong>generally carry low credit risk because of government ownership, though most are not explicitly government-guaranteed.<\/li>\r\n<li><b><\/b><strong><b>Coupon rate <\/b><\/strong>is fixed on face value, but actual returns depend on purchase price.<\/li>\r\n<li><b><\/b><strong><b>Yield to Maturity <\/b><\/strong>reflects the true return considering both coupon and redemption value.<\/li>\r\n<li><b><\/b><strong><b>Accrued interest <\/b><\/strong>ensures fairness between buyer and seller during coupon cycles.<\/li>\r\n<li><b><\/b><strong><b>Diversification <\/b><\/strong>with bonds and other assets protects against equity market shocks.<\/li>\r\n<\/ul>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p>\r\n<p>&nbsp;<\/p><\/div>\n<\/div>\n<\/div>\n<script type='text\/javascript'>\n\tjQuery(document).ready(function() {\n\t\tjQuery('#text_slider').owlCarousel({\n\t\t\titems : 1,\n\t\t\tsmartSpeed : 400,\n\t\t\tautoplay : false,\n\t\t\tautoplayHoverPause : false,\n\t\t\tsmartSpeed : 400,\n\t\t\tfluidSpeed : 400,\n\t\t\tautoplaySpeed : 400,\n\t\t\tnavSpeed : 400,\n\t\t\tdotsSpeed : 400,\n\t\t\tdotsEach : 1,\n\t\t\tloop : false,\n\t\t\tnav : true,\n\t\t\tnavText : ['Previous','Next'],\n\t\t\tdots : true,\n\t\t\tresponsiveRefreshRate : 200,\n\t\t\tslideBy : 1,\n\t\t\tmergeFit : true,\n\t\t\tautoHeight : true,\n\t\t\tmouseDrag : false,\n\t\t\ttouchDrag : true\n\t\t});\n\t\tjQuery('#text_slider').css('visibility', 'visible');\n\t\tvar owl_goto = jQuery('#text_slider');\n\t\tjQuery('.text_slider_goto1').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 0);\n\t\t});\n\t\tjQuery('.text_slider_goto2').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 1);\n\t\t});\n\t\tjQuery('.text_slider_goto3').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 2);\n\t\t});\n\t\tjQuery('.text_slider_goto4').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 3);\n\t\t});\n\t\tjQuery('.text_slider_goto5').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 4);\n\t\t});\n\t\tjQuery('.text_slider_goto6').click(function(event){\n\t\t\towl_goto.trigger('to.owl.carousel', 5);\n\t\t});\n\t\tvar resize_77925 = jQuery('.owl-carousel');\n\t\tresize_77925.on('initialized.owl.carousel', function(e) {\n\t\t\tif (typeof(Event) === 'function') {\n\t\t\t\twindow.dispatchEvent(new Event('resize'));\n\t\t\t} else {\n\t\t\t\tvar evt = window.document.createEvent('UIEvents');\n\t\t\t\tevt.initUIEvent('resize', true, false, window, 0);\n\t\t\t\twindow.dispatchEvent(evt);\n\t\t\t}\n\t\t});\n\t});\n<\/script>\n<\/p>                    <\/div>\n\t\t        \n                    <div id=\"videos-tab\" class=\"clearfix eael-tab-content-item \" data-title-link=\"videos-tab\">\n\t\t\t\t        <p><img decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/www.5paisa.com\/finschool\/wp-content\/uploads\/2021\/10\/coming-soon-person-g8026473a8_1920-removebg-preview.png\" \/><\/p>                    <\/div>\n\t\t                    <\/div>\n        <\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Study Slides Videos 25.1 Why \u201cGood\u201d Doesn\u2019t Mean \u201cRight\u201d A mutual fund may look excellent on paper\u2014high returns, strong ratings, impressive alpha\u2014but that doesn\u2019t automatically mean it belongs in your portfolio. The real test is whether the fund aligns with your financial goals and time horizon. Think of funds like medicines: paracetamol works for fever &#8230; <a title=\"How to Analyse Debt Mutual Fund\" class=\"read-more\" href=\"https:\/\/www.5paisa.com\/finschool\/course\/financial-planning-through-mutual-funds-course\/how-to-analyse-debt-mutual-fund\/\" aria-label=\"Read more about How to Analyse Debt Mutual Fund\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"parent":11088,"menu_order":14,"comment_status":"closed","ping_status":"closed","template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[],"class_list":["post-78086","markets","type-markets","status-publish","format-standard","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/78086","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets"}],"about":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/types\/markets"}],"author":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/comments?post=78086"}],"version-history":[{"count":5,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/78086\/revisions"}],"predecessor-version":[{"id":78147,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/78086\/revisions\/78147"}],"up":[{"embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/markets\/11088"}],"wp:attachment":[{"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/media?parent=78086"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.5paisa.com\/finschool\/wp-json\/wp\/v2\/categories?post=78086"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}