🟢DEBT FUND ज्ञान for 1st Time Investor | Ep# 1/3 ft. Himanshu Malhotra - YouTube

>> HIMANSHU: I'll just share my screen with you to show my performance up to date.

This is my portfolio till date. Starting with all debt funds

And of course, I've got 10%-15% returns for debt funds in the last few years,

which may seem difficult to believe.

[Intro Music]

>> MANDEEP: Hey guys! Welcome back to the channel.

My name is Mandeep & you are watching Labour Law Advisor.

Today, we shall talk about Debt Funds.

Because debt funds must always be a part of your portfolio

and mostly around us, all information pertains to the stock market and equity funds only.

Limiting our investment options to just the stock market makes our portfolio a little risky too.

Hence, it is very important for you to understand what are debt funds.

Why you should always have them in your portfolio to help manage your risk.

And which situations arise where you will definitely need debt funds.

So in today's video, we will cover these points.

And in the upcoming videos, I've taken the help of Mr Himanshu Malhotra

who has been investing in debt funds for the last 8 years and you will be shocked to know his return percentage!

>> HIMANSHU: Hey guys! Hi, I'm Himanshu Malhotra.

I'm a strategy consultant by profession.

I've been investing in equity and debt mutual funds for the past 7-8 years.

I have around 8 years of experience with debt funds.

So, I just wanted to share my journey with you.

What was my thought process for starting debt funds investment,

what was my methodology to choose funds,

what all did I learn and not learn from blogs and videos,

what all I've learned from my experiences.

So, this is just my attempt at showing you my methodology of selecting debt funds.

I'll just share my screen with you and show my performance for the last 7-8 years.

This is my portfolio until now and all these are debt funds.

And of course, these returns as high as 19% may look like difficult to believe

but typically I've received 10%-12% returns which are great.

>> MANDEEP: Oh yes! You can get 10%-12% returns in debt funds,

the only thing lacking is adequate knowledge

which will be fulfiled in the coming videos

as I create more videos on the risks involved with debt funds

and the process to select debt funds with the help of Himanshu as he practically shows you a live example on his computer screen.

So you should subscribe to this channel

and switch on the bell icon to get notified of these videos so that you don't miss them out.

This video will also help you to understand basics of debt funds so that you don't have any confusion with the later videos.

[Intro Music]

Before understanding debt funds you must know what are bonds?

Bonds are essentially loans.

See this as follows, a company has two ways of raising money -

first, it may release its share in the market which people can buy and become shareholders of the company.

The second is bond, where the company is asking you for a loan.

In return, the company will pay you the principal amount and interest on the principal as EMIs.

By the time the maturity ends, the company will have returned you the full amount.

In the same manner, as you return a bank a loan, the company returns you the loan.

This is known as a bond.

So you can buy different bonds in the market as well.

These bonds can be issued by either corporates or the government.

Now that you know what are bonds,

you can learn about debt mutual funds.

Just like in equity mutual funds, where you invest your money in different companies' shares,

in debt mutual funds you invest your money in different companies' bonds.

>> HIMANSHU: Basically you are giving a loan that can be given to the Government of India, in the form of Government Bonds, Government Securities or Treasury Bills.

Or you can give a loan to a company in the form of a Certificate of Deposit or Corporate Bonds.

Or you can give a loan to a PSU or Small Medium Enterprise.

Basically, a mutual fund manager gives your money as a loan in the market and shares the returns from it with you.

These are the basics of debt mutual funds.

>> MANDEEP: Now I had told you that it is important to have these in your portfolio. What's the reason for that?

The reason being that these are less volatile.

Like in equity funds where the share price may go very high or low,

debt prices don't fluctuate as much because essentially debt funds are bonds that are loans.

For instance, I give you a loan of Rs 1000 at 8% interest then that interest rate is fixed.

So I sleep peacefully at night thinking that you will always pay me 8% interest and at the time of maturity I will receive the Rs 1000 back as well.

Hence this is not volatile, and the money we don't want to invest in high risk should go towards debt funds.

In fact, there is a rule that the percentage of your debt fund investment must equal to your age, to protect yourself from high risk.

Suppose my age is 25 years and I have Rs 100 to invest, then Rs 25 should go towards debt funds and Rs 75 towards equity funds.

This is important to do because suppose during Covid in March

if I needed money then my Rs 75 investment would have come down to Rs 50-40.

And I would have been very upset that I can't withdraw this investment.

But debt funds would not see such a drastic drop, so if I needed the money,

I could have withdrawn from that Rs 25 investment.

Now let's discuss the situations where you will always need debt funds.

The first instance is unexpected cash flow.

You got a bonus from the company or won a lottery or got some extra income in a month.

But you have not decided what to do with that extra income.

You can't invest it suddenly in the share market because you need time to study the market, know the correct timing, etc.

And you also don't want to keep it in the pocket or bank and get used up in unnecessary things.

So what you can do is put that money in a stable return asset which is a debt fund.

And after 2-3 months when you finally decide what to do with that money, then you can withdraw it.

At least until then, it will keep getting a good return.

The second instance is short term planned expense.

For example, you want to buy a bike in 1-1.5 years or a phone in a couple of months.

>> HIMANSHU: Second goal is any planned expense you have in the next 1-3 years.

You want to go on a foreign vacation or have a sibling's marriage, etc.

So you need money for these which are your short term goals.

And equity investment is not suited for it because they are suitable for goals of over 5 years.

>> MANDEEP: If you want to save money for it then of course you can't invest it in the share market.

Because suppose after 1-2 years covid's second wave comes

then you can't withdraw that money since it will be at a loss.

Hence if you want to save money for something in short term then you need to keep it in debt funds

so that it gives stable returns and you can sleep peacefully at night

knowing that you can withdraw that amount whenever you need it.

And the third instance is rebalancing. This is very important.

>> HIMANSHU: Say you are investing for 15 years for your child's education.

And most of it was equity because people opt for equity for long term goals,

whether it is 70%, 80% or 100% investment.

Now you are in the 12th year of that goal and don't want too much volatility with it.

So now you will rebalance your funds by slowly shifting them from equity to debt.

Suppose it is a retirement fund, and you were investing for the last 30 years. Now you are 60 years old

and you're going to retire and your source of income is about to end.

So you had invested the money in equity but don't want any more volatility with it,

so you will slowly rebalance and shift the investment towards debt funds.

This is called rebalancing and it can be a type of goal.

So there can be many reasons for investing in debt funds, hence identify your reason first!

>> MANDEEP: You may possibly know some of these things already

but it is very important for you to know and understand these basics.

>> HIMANSHU: In general people, and me included, think debt funds mean low-risk investment.

Debt funds give low risk, high returns. Returns will be higher than FD but lower than equity.

The biggest catch before investing in debt funds is knowing all the risks involved with it.

In a lot of ways, debt funds may have more risk than equity funds.

But people often are unaware and invest in just any debt funds without knowing that it may be riskier than equity mutual funds.

>> MANDEEP: In the next video itself, with the help of Himanshu, I will tell you the three biggest risks involved in debt funds

due to which may sometimes be riskier than equity.

So your purpose will be defeated, if you were investing in debt funds to avoid risk

and then find out that it turned out to be riskier.

So to avoid such a mistake, the next video is extremely important for you

and it will be coming out in the next few days itself.

And even before that, you should have a ready to invest app, to invest in mutual funds.

And although this video is not sponsored,

I am still giving you my recommendations.

I've been encouraging you for quite some time to have a Demat account

and to open one on Zerodha.

So if you are already a Zerodha customer

then download the Zerodha coin app.

It will save you from creating a new account

and you can use the same id and password of Zerodha to log in.

But if you are not a Zerodha customer then don't download the coin app

since it has registration fees.

And if you want to save registration fees then you can download the Groww app.

You will need to create an account on it, which will take 2-5 minutes but the app is free.

I've given links for both in the description box below

as well as the link for Jagruk Janta's new merch collection.

If you want to buy some clothes, they can consider this.

I'll meet you very soon in the next video,

until then bye!

[Outro Music]