And the winner of 2018 is Debt Fund

At the start of 2018, every investor was upbeat about the equity market and the returns being generated by them. Most of them were overweight on equity and a major part of their portfolio was invested in equity. The debt fund was not considered to be the best asset in the year 2018. Hence, the exposure to the debt funds was minimum. The reason for such lower interest in debt was due to rising interest rates and falling yields that resulted in poor performance of many debt funds. 

Nonetheless, at the end of the year 2018, when we see in the rear mirror, we find that our entire investment assumption has gone diametrically opposite and debt funds seemed to be a better bet than investing in equity-dedicated funds. The average returns generated by debt funds are 6.3 per cent. This is despite the NBFC fiasco that we witnessed in the last quarter of the year 2018. The best return was by Gilt funds, which generated a return of 8.59 per cent in the last year.


 
The hybrid funds that invest in both equity and debt in different proportion performed better than the equity funds, however, the laggard performance of debt funds. Even in hybrid funds, the aggressive funds which invest a minimum 65 per cent of their assets in equity gave a negative return.



This teaches an important lesson for many individual investors who do not pay much attention to the proper asset allocation and are leaning towards equity funds. Data shows that more than 90 per cent of the assets in debt funds are held by institutional investors. A well-thought asset allocation strategy would have helped investors to generate better returns and good investing experience.

Another important lesson for investors is that you should not go overboard with debt funds in 2019, just because they generated better returns last year. The rising interest rate in the US market along with liquidity tightening is going to adversely impact the debt returns in 2018. Therefore, a proper financial plan along with right asset allocation is key to a good investment decision.