In 2022 pretty much all bond funds fell along with equity internationally due to the increase in rates by most central banks. Many debt funds fell 7 to 10 % solely on interest rate increases without any defaults. However, many debt funds moved close to 7 % in the last 3 months of 2023 anticipating future rate cuts. As for FDs, one doesn’t have to worry about who it is lent to. Rather one can look at CRAR to know how well a bank is capitalised so that one doesn’t have to worry about bankruptcies. For instance, Govt used to regularly infuse capital into PSBs to maintain this CRAR. Definitely, the return on debt funds are expected to be better. If we are taking into consideration the chances of default in bond funds, the big question is the differential in returns worth the risk?
Returns on bond funds mentioned are for international funds, never tracked Indian bond funds
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