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News Coverage

Happenings / News / Press Coverage

Despite a sharp fall in the assets under management over the past year, dynamic bond funds have managed to enter the top- 10 best performing open-end debt funds list, delivering returns in excess of 3% in the past three months (till August 12).
Some of these funds have delivered returns in excess of 8% in the last one year outperforming their shorter duration peers for whom the market has been favourable following the hardening of interest rates. Many of these funds have even outperformed traditional income funds.Returns of dynamic bond funds have picked up in a volatile interest rate environment. Fund managers have increased the average maturities of these funds," said Dhruva Raj Chatterji, senior research analyst, Morningstar India, an investment research firm.The yields on corporate bonds (three-year , five-year and 10-year tenure), which were hovering at around 9.8% a few months ago, have come down to around 9.4% pushing up returns of dynamic bond funds, said Maneesh Dangi, head, fixed income, Birla Sun Life Mutual Fund. Bond prices have risen on the decline in yields. Bond yields and prices are inversely related.Typically, the duration and average maturity of dynamic funds tend to be longer if the fund manager believes that interest rates are falling or are likely to fall.
But when interest rates are rising or are likely to move up, a shorter duration portfolio is preferred as it would limit interest rate risk and provide more flexibility to realign the portfolio. "With the uncertainty in interest rates still prevailing , retail debt investors can consider dynamic bond funds in the medium term," Dhruva said.
The average maturities of dynamic bond funds seem to suggest that most fund managers are betting on a possible pause in the rate hike cycle in the near term. The average maturity of dynamic bond funds (as a category) increased from 1.24 years in March 2011 to 2.09 years at the end of July 2011, data compiled by Morningstar India shows.
These funds could turn out to be a suitable option for investors who do not want to be bothered about the choice of either going long or short, and would want to leave that decision to the fund manager, he said. The cumulative assets of dynamic bond funds have fallen from about Rs 11,000 crore in June 2010 to around Rs 4,300 crore at the end of June 2011.

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