A Study on Risk Assessment of Debt Funds in Mutual Fund Investments

Abstract: This study evaluates the risk profile of debt funds within mutual fund investment strategies, focusing on their market, credit, interest rate, and liquidity risks. Debt funds, while generally considered safer than equity funds, are subject to a complex array of risks that can significantly impact investor returns. The assessment explores the underlying instruments held by debt funds, such as government securities, corporate bonds, and money market instruments, and analyzes how fluctuations in macroeconomic indicators particularly interest rates and credit ratings affect fund performance. Case studies of recent debt fund defaults and regulatory interventions (such as those by SEBI in India) are used to illustrate systemic vulnerabilities. The paper also highlights the importance of portfolio duration, credit quality, and fund manager strategies in mitigating risks. The findings underscore the need for comprehensive risk profiling by investors and robust regulatory oversight to ensure transparency and protect investor interests in debt-oriented mutual fund products

Keywords: Debt funds, Risk assessment, Interest rate risk, Investment risk, Risk-Return analysis