Understand if you should organize your debts or change your strategy

Financial planners point out that many of the problems in the equity market debt started when the IL&FL defaulted. It was a major entity backed by well-known institutions that had the highest credit rating. “IL&FS non-compliance has caused a systemic problem. It has disrupted the debt market and lenders cannot trust borrowers. The ripple effect is likely to continue," Sadagopan said.

different strategies

There are no fiscally efficient alternatives to trust funds. debt if you are in the fiscal bracket of 20% or more, and you remain invested for three years or more. According to financial planners, buying debt funds is better than investing in a company's stock directly. “Debt funds invest in multiple roles. If a company defaults, only a part of the portfolio would be affected. Compare to buying non-convertible DHFL debentures. The investor would have to write off the entire investment,” said Steven Fernandes, a Sebi-registered investment adviser and founder of Mumbai-based Proficient Financial Planners. Planners are sticking with debt funds, but have changed the way they invest them.

Low exposure to credit risk: Most financial planners have moved client money out of credit risk funds or kept a low category allocation. “For almost 98% of clients, we have moved out of credit risk funds and into other categories,” Majumder said.

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Using arbitrage funds: If you want to invest money for more than one year but less than three, financial planners suggest going with arbitrage funds. They are more tax efficient than debt funds for those in the tax range of 20% or higher. “Arbitrage funds invest in equity derivatives. They earn their profits from the wrong price of shares in the futures and cash markets. Their returns are similar to those of mutual funds. debt. Because they invest more than 65% in stock derivatives, they are taxed as a stock fund.

. Arbitrage funds use stock futures and options and hedge all of their positions, so changes in stock prices do not affect their returns.

Keeping score: Due to recent defaults, planners are looking at debt portfolios more closely than ever before. “What has changed for us recently is the way we look at a debt fund. Previously, we looked at the 70-80% of the participation of a fund of debt. Now we go deeper. We look at each debt fund holding company and regularly monitor how the allocation changes,” Fernandes said.