In the past month or so, I have asked several senior mutual fund industry officials about their personal investments in debt. Of the 16 – a mix of CEOs, equity fund managers, sales executives and risk officers – who spoke, only four said they invest in schemes of fund houses where they work, probably wanting to sound correct. The responses from the rest of the 12 (none of them are debt fund managers) were more interesting. Out of the 12, three said that they invest in fixed income mutual funds, while nine said the debt portion of their personal investments is in fixed deposits, PPF and VPF. The debt mutual fund categories, which the three officials opted for are Fixed Maturity Plans FMPs ) and liquid funds.The choices of these industry officials are telling. Though one could debate about the sample size, the crucial aspect here is that some of these senior officials do not find enough comfort in putting money in the products they sell. Before the IL&FS fiasco – the root cause of the ongoing crisis – the chief investment officer of a fund house said debt schemes today are just a sanitised version of what they were in 2008. Then, the ripples of the global financial market turmoil had touched the Indian shores, resulting in a few mutual funds scrambling to get back their money. The impact was limited because then the size of the fixed income schemes was miniscule compared to today and mutual funds were willing to shoulder the burden of investors’ losses.With debt funds growing in assets, it’s impossible for mutual funds to absorb investors' losses. Assets under management of debt schemes have almost doubled from around Rs 6 lakh crore in March 2014 to Rs 11.63 lakh crore in March 2019. The capital markets regulator too has insisted on passing on the losses to investors as is the global practice. This has come as a shock to several investors, who shifted from fixed deposits to market-linked debt products. They came in expecting superior returns, but nobody told them that their capital can erode as well.There are a few points that investors need to keep in mind while looking at debt schemes.First, debt mutual funds are not structured to ensure that investors get their entire money back in the event of rating downgrades, defaults or delay in repayments by the companies whose securities they hold. By now, it should be clear to investors that if there is an adverse event, the NAV, or net asset value, (returns) of the scheme would erode to that extent. It might be worth debating whether these schemes can be called 'fixed income’.Second, large fund houses’ debt schemes do not assure that you will get your entire money back. Many investors preferred putting money in schemes of leading mutual funds, especially those owned by large financial institutions on the perception that their money is safer there. But after some of the recent episodes where debt schemes of big funds took a hit, it is evident that such a strategy need not work. In fact, a smaller fund house managed to exit the loan against shares arrangement involving Essel Group , which owns Zee, thanks to its smaller size. In fact, investors' decision to prefer large funds have come as a blessing in disguise for the smaller ones.Third, choosing debt mutual funds requires much more advice than equity. If distributors and financial advisors argue that investors need more handholding than ever to decide on investment products, it is debt where they need maximum help. The basis of debt investing is whether companies would be able to repay the money in the short term.Analysing a bond portfolio requires much more rigour than an equity scheme and it is crucial to understand whether a product has followed proper risk practices. Unfortunately, debt scheme investing is done mostly based on perceptions. Distributors do not invest time and resources on debt because they are paid money for bringing in equity assets by funds. For mutual funds, debt schemes are asset gathering products that help them achieve scale.In the past five years, debt mutual funds were gaining popularity among investors at the expense of fixed deposits because of better taxation and returns. Now, that investors have realised that the pitfall of debt mutual funds vis-àvis FDs is safety, the scores are levelled. Investors now need to decide why they are putting money in debt. Is it safety or tax advantage or higher returns?