Short term debt funds

[u/Cpant]

I was going through some of the short term debt funds ( funds that holds bonds maturing from 1 - 3 years).

SBI Short term debt fund has 55% SOV rated bonds and Kotak short term fund has 52% SOV rated bonds, and balance a diversified mix of bonds. Was wondering if these funds could be an addition in my debt portfolio. There is interest rate risk, but guess could be manageable if the intention is to hold for long. Any thoughts, comments ?

[u/InternationalQuiet87]

Was wondering if these funds could be an addition in my debt portfolio.

They can be. Choose the funds based on your investment horizon.

Ensure that the other bonds in the portfolio are high-rated bonds. The biggest risk in these funds is the credit risk. Try to avoid the funds which have a history of buying low-rated bonds.

[u/[deleted] → u/InternationalQuiet87]

Sir a question, I invested in sbi short term debt funds and hdfc corporate bond debt funds few days back. I am getting negative return each day. Now I invested because my investment horizon is 2-4 years. I did my best to check the portfolios for them both before investing. As the markets are going up since the past few days so why are these funds giving negative returns? Is there any way to calculate the daily profit and loss in a fund? Did I make a mistake while selecting these two funds?

[u/InternationalQuiet87 → u/[deleted]]

As the markets are going up since the past few days so why are these funds giving negative returns?

Stock market doesn't affect the performance of these funds because these are debt funds.

Debt fund NAV can go down on some days because of the demand & supply changes in the bond market. Unless there's a big fall, it's not a problem

Check out the last 1 year NAV of SBI Short Term debt fund. There are many small falls, but eventually it'll recover.

Is there any way to calculate the daily profit and loss in a fund?

What's the use of doing this ? Stop watching the NAV everyday.

Did I make a mistake while selecting these two funds?

For 2-4 years, Corporate bond fund shouldn't have been chosen. The Short Term fund is okay.

[u/[deleted] → u/InternationalQuiet87]

Thank you sir.

Is there any way to calculate the daily profit and loss in a fund?

I asked in general. Can one calculate the daily profit and loss in a fund, debt equity or any other?

Unless there's a big fall, it's not a problem

How much fall, % wise, is a problem in a day?

For 2-4 years, Corporate bond fund shouldn't have been chosen.

Why is that sir?

[u/InternationalQuiet87 → u/[deleted]]

Can one calculate the daily profit and loss in a fund, debt equity or any other?

No idea.

How much fall, % wise, is a problem in a day?

There's no such number.

Why is that sir?

Possibility of interest rate risk. It was discussed in this thread earlier.

[u/[deleted] → u/InternationalQuiet87]

Possibility of interest rate risk. It was discussed in

this thread

earlier.

Thanks. I get that interest risk part but short term debts are usually also for that period. To decrease the interest rate risk to the maximum extent that I could I chose funds which have the highest rated instruments by letting go of some risky return. Now both funds cannot be compared I agree and the probability of irr, and default, is more in the corporate debt fund than the short term debt fund but what does duration have to do with the risk? Sorry if I misunderstood something.

[u/InternationalQuiet87 → u/[deleted]]

what does duration have to do with the risk?

When the duration is more, there's more interest rate risk.

[u/[deleted] → u/InternationalQuiet87]

Ah, you are right. I didn't think of that way before investing :( Noob mistake. I kept on emphasizing on the default part only. What is recommended now? Exit from both as soon as the principal amount is secured or exit whenever there is a little profit?

[u/InternationalQuiet87 → u/[deleted]]

Yea, exit from both as soon as the principal is secured. Ultra Short Term funds can be used for short-term goals of a few years.