Planning During Financially Turbulent Times

Sometimes, a shakedown can be very helpful in identifying existing defects or inconsistencies. As Warren Buffet famously quoted, “You only find out who is swimming naked when the tide goes out”.

As humans, we lament about the past and worry about the future. However, at different points in time we get the opportunity to plan for our future so that when we look back, we are satisfied with our decisions. The investment journey is much like our life journey. All of us have dreams and aspirations for the future – these are our financial goals. When we start earning, we pay little attention to saving and investing for these goals. Consequently, as we grow older we are unable to accomplish these goals and look back at our decisions with regret. 

The credit markets in India are currently in a bit of a quagmire due to which the mutual fund industry is at the receiving end of a shakedown. Recent credit events have led to many investors questioning their decision to invest in debt mutual funds. Should debt fund managers have anticipated this credit risk? Or, did they knowingly expose investors to more than acceptable risk? Or, was there negligence in risk assessment? 

Unfortunately, these questions do not have a binary answer. While fund managers should have exercised better judgment, it is not always possible to anticipate such events. What the investors should ask is whether they should continue investing in debt mutual funds and the answer to that is a clear “YES”.

The disclaimer “mutual funds are subject to market risk” is applicable to all mutual funds and not just to equity mutual funds. Debt mutual funds carry varying levels of risk based on their tenure and types of paper held in the fund. Thus, investors should meet with their financial advisor to better understand the risks in these funds and then invest in those funds that best suit their risk profile and are capable of meeting their financial goals. Good financial planning can help you make the most optimal investment decisions.  Make your financial journey a happy and fulfilling one with the right financial advice.