What's the difference between a pure debt fund and a short debt fund?
There are differences between pure debt funds and short-term debt funds in investment characteristics, risks and returns.
1, investment scope
Pure debt funds mainly invest in convertible corporate bonds, corporate bonds, credit bonds, government bonds and other bonds. You can flexibly adjust the size and proportion of positions according to market conditions, determine the investment portfolio according to the credit rating of bonds, and usually choose bonds with higher ratings to ensure stable returns.
Short-term debt funds mainly invest in short-term (generally within 1 year) and low-risk fixed-income securities, such as government bonds, policy financial bonds, local government bonds, bank certificates of deposit, etc. These securities are relatively less risky and have stable fixed income performance, which is suitable for short-term investment.
2. Investment cycle
The investment cycle of pure debt funds is relatively long, mostly in the medium and long term. Pure debt funds need to obtain higher returns by holding bonds for a long time, and also need to bear certain interest rate risks and credit risks.
The investment cycle of short-term debt funds is relatively short, usually within 1 year. Due to the short term of holding bonds, the risk of interest rate fluctuation can be effectively avoided and relatively stable income can be obtained.
3. Risk reward
Pure debt funds and short-term debt funds also have differences in risks and returns. Pure debt funds usually have high returns and high risks, while short-term debt funds have relatively low returns but relatively small risks.
Which is more risky?
Pure debt funds mainly face credit risk and interest rate risk. Credit risk refers to the risk that the bond issuer or guarantor cannot repay the principal and interest on time for various reasons, resulting in the depreciation of the fund assets; Interest rate risk refers to the risk that the net asset value of a fund fluctuates due to the impact of changes in market interest rates on bond prices.
Short-term debt funds mainly face liquidity risk and interest rate risk. Liquidity risk refers to the risk that the securities market is inactive or the fund scale expands too fast, which will affect redemption; Interest rate risk refers to the risk that the net asset value of a fund fluctuates due to the impact of changes in market interest rates on bond prices.
Generally speaking, pure debt funds are relatively more risky, and they need to bear certain credit risks and interest rate risks while obtaining higher returns; The risk of short-term debt funds is relatively small, but the income is relatively low.