Debt Funds: Manage Risks by Matching Expectations

• Debt funds, though often perceived as stable, carry various risks including interest-rate, credit, liquidity, concentration, and duration risks.
• Interest-rate risk means fund returns move inversely to interest rates, potentially causing mark-to-market losses in rising rate environments.
• Credit risk arises from lending to lower-rated companies for higher yields, increasing the potential for defaults and impacting Net Asset Value (NAV).
• Liquidity risk can make selling underlying securities difficult during market stress, affecting NAV if many investors redeem simultaneously.
• Understanding these risks and matching investment expectations with the fund's reality is crucial for thoughtful debt fund portfolio placement.

Why It Matters: Learn debt fund risks to align investments with expectations and avoid financial surprises.