Debt Mutual Funds outperform Equity Mutual Funds

It is always seen that equity mutual funds as an asset class perform better than any other asset class. But this holds true when we look at investment in equities for a long term. But in the short-term period of one year, debt mutual funds outperformed equity mutual funds.

In the last one year debt as well as equity has been pretty much volatile, but debt mutual funds have provided superior returns than that of equity mutual funds. All the equity schemes apart from IT (Information Technology) and international funds have provided negative returns.

If we look at the past one year returns, then on an average equity mutual funds have given returns of negative 8.0 per cent. Whereas on the other hand for the same period of one-year debt mutual funds gave an average return of positive 5.0 per cent.

The outperformance of debt mutual funds over equity mutual funds have proved the importance of asset allocation. Even if we assume 50 per cent allocation to equity mutual funds and 50 per cent allocation to debt mutual funds then also your portfolio would have generated negative 1.5 per cent average returns which would have been better than investing wholly in equities and losing an average 8 per cent on your portfolio.

If we consider the one-year period as short-term and if you would have invested 25 per cent in equity and 75 per cent in debt then your portfolio would have earned positive 1.75 per cent average returns. This means there wouldn’t be any loss of capital.

It is very crucial to understand the importance of asset allocation and periodic re-balancing. These tools would help you reach your desired goal in a very efficient manner.