Over the course of the last 2 weeks, following the Franklin debt funds’ fallout, many of you (our subscribers) have written to us seeking answers to a number of questions on the debt funds you hold.
After the Franklin Templeton debacle, CEOs of asset management companies have been out in big numbers across media to reassure investors that this was an isolated case and that there’s no crisis for the debt fund industry itself.
The winding up of Franklin Templeton’s debt schemes has proved how credit risk and liquidity risk can be a lethal combination. While the funds’ closures are an extreme event, this may be a good opportunity for you to take a relook at your portfolio – without panic, that is.
The last two years of turmoil in the debt fund space may have left you wondering what returns to expect from debt funds. Will debt funds beat FD? Or would their returns hover somewhere around their yield (yield to maturity) as promised by some? Are double-digit returns possible in debt? Use this analysis to set more realistic expectations from debt funds instead of a vague 8% or 9% return you may have in mind.