The quality and liquidity of the underlying assets within a debt mutual scheme is of utmost importance while making an investment decision. However, that has been not the case when it comes to debt mutual funds investors who have already suffered due to sharp markdowns in valuation due to exposure of debt schemes in debt instruments in less than credible firms. As per the report by Fintso, a vertical aggregator for independent financial advisors rethinks that whether the debt should still be a part of client portfolios.

Recently the debt securities which add stability to the overall portfolio have witnessed more volatility as compared to the equity. As per the firm, the question is not about return on capital anymore, but the return of capital. That said, the performance of any asset class when considered for a longer period tends to smoothen out and still holds merit while holding a diversified portfolio.

As per the Fintso, there is still a merit in having debt as an asset class of being part of the core portfolio. “With recent developments, MFs have been viewed as a risky investment product. But they do offer the dual benefit of liquidity and lower taxation. Hence, Fintso report recommends advisors to continue to access various funds for their specific risk-reward requirements and make appropriate investment recommendations,” says Fintso.

As per the report, investment products need to be evaluated from three parameters that are safety, liquidity, and return. Here the safety means a return of your capital, liquidity indicates the flexibility during the redemption of your money as and when required. However, this often gets compromised during difficult times. “Products apart from mutual funds generally provide high visibility of returns and also merit a place in investors’ core debt portfolio. Therefore, a debt portfolio must be designed considering investors' tax status, safety, risk appetite, and liquidity needs,” notes the report.