Debt mutual funds have exposure to corporate bond paper. There is always a risk premium attached to these bonds and a spread over the government-backed bonds/treasuries.

The key to understanding risk is to what extent in a debt portfolio does it have exposure to one security/bond. The credit rating matters, but also the liquidity risk is necessary to gauge.

Valuing a bond is also tricky. Crisil and ICRA, both do have their valuation matrix. At the end of the day, the valuation committee will arrive at the price of the bond.

In the current context of debt paper gone bad, or risk of default, all is not so grim as it appears to be. A concept of “side – pocketing” is key to managing risk in a portfolio and how it is tackled by a fund manager is key. More can be discussed but it’s a never-ending dialogue.

Rajeev Thakkar

He is the Chief Investment Officer of PPFAS Mutual Fund.

Regarded by many as a polymath, his presentations, cover diverse topics ranging from the state of the shipping industry, corporate leadership, capital allocation and individual companies like Google. His audience usually takes to him wholeheartedly, as he possesses the endearing quality of 'talking to' them and not 'talking down to' them. Apart from them, certain presentations may be made by a few of their colleagues on account of them being well versed with a specific topic.

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