In the last video, we went through the process of selecting equity funds. Now we go through the process of selecting debt funds. First let's formulate a strategy. As with equity funds, we start by finding some recommendation for debt funds from various sources what is available to us, like financial newspapers, journals, experts, etc. Next we conduct fundamental analysis of the debt funds. Now, fundamental analysis basically means finding out what is the expected returns what is the standard deviation or risk, what is beta what is Sharpe ratio ratio etc.

Now, in part two of this course, we have seen where to find such information and how to gather these information once we have the metrics So, the debt funds which need to utilize them to make the selection for the debt funds which will invest in ideally we should consider all the metrics and study all the metrics and make a decision based on that. However, it is difficult to formulate a formula if we consider all the different metrics together. So, We need to make a practical formula. Now, debt funds are naturally very low risk clients. So, all of all that we consider for selecting a debt fund is which debt funds provide the maximum returns. So, to summarize a strategy, we find a list of debt funds, which we will study.

Now we collect the returns expected returns for each of these debt funds and make a selection of the debt funds which provide the maximum expected returns. For the purpose of illustration, I have taken five debt funds these are Franklin India low duration fund idfc bond fund, India bolts, liquid fund, reliance Income Fund and SPI dynamic bond fund. Now, as I've been stating, these are no way any recommendation for investment. This is just for the purpose of illustration. From The Economic Times website, I have gathered the figures of expected return standard deviation on Sharpe ratio for each of these five data points that we have selected for analysis and selection. Now I have arranged these five funds in the descending order of their expected returns.

So we get that Franklin India low duration fund gives the maximum expected return such as 8.72% and SPI dynamic bond fund gives eight 7.82%. Now, as we required to select two debt funds, we select the top two that is Franklin India low duration fund and SPI dynamic bond fund for our sample portfolio. provided here are the metrics of the two funds that we have selected. Thank you for listening. See you in the next lecture.