Can the NAV of a debt fund fall?
A debt fund invests in fixed-income instruments, where safety of capital and regular returns are assured. These include Commercial Paper, Certificates of Deposit, debentures and bonds. While the rate of interest on these instruments stays the same throughout their tenure, their market value keeps changing, depending on how the interest rates in the economy move. A debt fund’s NAV is the market value of its portfolio holdings at a given point in time. As interest rates change, so do the market value of fixed-income instruments – and hence, the NAV of a debt fund. Thus it is a misnomer that the debt fund’s NAV does not fall.
