Pure debt fund is a kind of bond fund, which refers to the fund products invested in bonds. The bonds it invests in are issued by enterprises and countries, all of which have a certain term, and the principal and interest will be repaid after maturity.

Is pure debt fund risky?

It's risky but not big. The biggest risk of pure debt funds is that they can't keep up with inflation, which is mainly determined by the investment target. The investment target of pure debt funds is bonds. Although financial products such as bonds are risky, they are relatively stable as a whole, and even if they lose money, they will not lose too much. After all, bondholders can get stable interest income as long as they hold bonds due.

But this does not mean that pure debt funds can buy at will, regardless of risk. Any investment has certain risks, and it will not 100% make money or lose money, and so will bond funds.

The following are the risks that investors may face when buying pure debt funds:

1 Risk of interest rate rise

Bond prices are negatively correlated with market interest rates. If interest rates are raised and bond prices fall, it will naturally reduce the income of bond funds.

2 Inflation risk

For example, investors buy a bond with an annual interest rate of 8%, and its nominal yield is 8%. In that year, the inflation rate was 3%, and the actual rate of return of investors was 5%. When the inflation rate was 8%, the real rate of return of investors was 0; When the inflation rate exceeds 8%, investors not only lose money, but also lose money.

3 credit risk

Simply put, the borrower borrowed money and couldn't pay it back. Borrowers here generally refer to governments, financial institutions, listed companies and enterprises.

Under normal circumstances, the government and the central bank will not default, but companies and enterprises may default, especially because of poor management, leading to bankruptcy.