Dynamic bond funds are money pools that are invested in debt securities. But these are funds in which the manager of the fund has the freedom to decide the duration of the portfolio.
This calls for deft handling of investments in the light of interest rates by the fund manager. Therefore, the performance of any bond fund is critically dependent on the fund manager’s skill to read the direction of interest rates accurately.
For risk-averse investors
“Dynamic bond funds are suitable for risk-averse investors. These are also appropriate for investment tenures of 3 to 5 years,” said investment strategist and director of Wishlist Capital Nilanjan Dey.
Dynamic bond funds are also recommended by experts for the diversification of portfolios of those who invest both in equities and debt.
Dynamic bond funds offer debt instruments across tenures. They are also safer than equity-oriented funds.
Relation with interest rates
A very significant point for investors in bond funds to remember is that their performance varies with change in interest rates. If the rates go up, the debt funds can expect a decline in returns since future debt paper will fetch higher returns and the price of existing papers fall.
Conversely, in a declining interest rate scenario, debt funds give good returns.
All-weather funds
Any dynamic fund should benefit from both rising and falling interest-rate cycles by altering allocations between long-term and short-term bonds.
This makes them rather all-weather funds from the interest rate prism.
Rising popularity
The investment in this category of mutual funds is steadily rising. AMFI (Association for Mutual Funds in India) data suggest that on September 30, 2022, a total of 24 dynamic debt funds had a total AMU of Rs 22,083 crore.
On the last day of September 2023, the figure for total AMU rose to Rs 30,470 crore.
The latest AMFI data say that on June 30, 2024 their cumulative net AUM climbed up to Rs 32,569.23 crore.
Some popular funds
UTI Dynamic Bond Fund, Aditya Birla Sun Life Dynamic Bond Fund, ICICI Pru All Seasons Bond Fund, SBI Dynamic Bond Fund, Bandhan Dynamic Bond Fund, IDFC Dynamic Bond Fund, Kotak Dynamic Bond Fund are some of the popular bond funds in India.
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There are 22 dynamic bond funds in the mutual fund space. On June 30, 2024, their net AUM stood at Rs 32,569.23 crore. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
