Debt Exposure Essential for Balanced Portfolio: Fund Managers Weigh In

Investors Overlooking Debt Investments Amid Equity Market Boom

Investors tend to ignore debt investments when equity markets soar, dismissing them as slow-moving and less rewarding. Fund managers warn that this approach can hurt long-term wealth creation, especially during volatile phases when equity portfolios see sharp drawdowns.

Debt exposure acts as a stabilizing force, helping investors stay disciplined and avoid emotional decisions during market corrections. Fund managers argue that incorporating debt investments into a portfolio can provide a safety net, allowing investors to ride out market fluctuations.

Kalpen Parekh, Managing Director and CEO of DSP Mutual Fund, emphasized the importance of debt investments during a recent presentation at Moneycontrol's Dezerv Wealth Summit 2026 in Bengaluru. He highlighted the benefits of investing in multi-asset allocation funds, which typically allocate 25% of their portfolio to debt.

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Since September 2024, individual stock portfolios have fallen 20 to 40%, while bond portfolios have delivered positive returns. A Rs 100 investment in debt has appreciated to Rs 111 in the same 20-month period, while equities have declined by around Rs 30. This represents a 40% alpha.

Not having debt investments is akin to buying a car with two accelerators and no brakes or seatbelts. Parekh argued that debt investments are essential for earning long-term equity returns.

Rajeev Radhakrishnan, CIO, fixed income, at SBI Mutual Fund, emphasized the importance of debt investments despite tax-related challenges. He suggested that debt should remain an essential part of investment portfolios.

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Despite taxes on debt investments being punitive in India, debt funds have delivered relatively stable returns even during turbulent market phases. Radhakrishnan noted that over the last couple of years, short-term debt funds have delivered around 7.5% plus gross returns.

Investors should be wary of investments that promise returns higher than equities yet claim to be safe. Parekh cautioned that if an investment promises 16% returns in fixed income, it is likely too good to be true.