Don't panic if there's a downgrade in your debt fund

Medium and long-term funds always face credit risk. If you can't stomach volatility, stick to FDs

Debt fund investors don’t need to panic if they suffer interim losses during to rating downgrades of companies in their debt mutual fund schemes. Experts say that as long as the exposure of the fund to such downgraded paper is limited to five-seven per cent, there should be no reason to get too worried. “Most think that debt funds are risk-free. If they give you better returns than a bank fixed deposit, they have to take more risk,” says Kunal Bajaj, founder and CEO at Clearfunds.

Recently, rating agencies downgraded IDBI Bank, which would have resulted in mark-to-market losses for