A rise in interest rates is an unfavorable condition for bond investments because bonds start losing with an increase in interest rates. Bonds build an inverse relationship with interest rates. This is the reason that investors would prefer bonds with higher coupons to stay in profit even during a fall in case of rising interest rates. Among various mutual funds, one is dynamic mutual funds. These bonds in India do not possess any limitation towards durations.
With a rise in interest rates, investors are gazing at dynamic bond funds to reduce the effect on higher bond yields like invest in AAA higher bonds yield, invest in AA higher bonds yield and invest in A higher bonds yield. In December 2021, investors started to turn to these funds. It is the only category across debt funds with positive net flows.
What are Dynamic Bond Funds?
Dynamic bond funds are open-ended mutual funds investments. These funds are quite flexible than other debt funds but at moderate risk. In these funds, fund managers have the freedom to invest in bonds with different durations/maturities.
Is It A Good Choice To Invest In Dynamic Bond Funds?
The straightforward answer is yes. Market experts envision a rise in interest rates at a faster pace than expected. The central bank RBI may be pushed to raise interest rates to cope with the increased velocity of price pressures. Many debt fund investors are confused about what strategy they should adopt to invest in central bonds.
The answer is Dynamic Mutual Funds that are flexible enough to be benefited during the fluctuation period in the bonds market.
If you are amongst various investors confused in the bond territory, you can make bond investing easy with dynamic bond funds. Let us clarify about these funds, risks, and suitability to invest in Dynamic bond funds.
How Dynamic Bond Funds work?
Like other funds, the performance of these funds depends on the fund manager’s outlook and experience in the market. They can invest where they expect to earn maximum returns. Therefore, when the interest rates increase, they can look at short term bonds. If they expect interest rates to decline, they will invest in long term bonds for higher yields.
Fund management teams remain active to decide on bonds maturing within a few months and ones with maturity after several years.
Considering the Yield to Maturity (YTM) of Dynamic Bond Funds, investors should know that the YTM of longer-term bonds investment is higher than that of shorter-term bonds investment.
Flexibility towards bond investments in india does not mean that dynamic debt funds are sure shot winners. The primary risk is the error of judgement. A wrong call can affect the fund’s performance adversely.
In case there is a lack of firm interest rates cues, the safe investment option in India will be proved a costly mistake. Hence these government bonds are considered moderate risk funds.
Before investing in the corporate bonds fund, check the reputation of the fund managers. If the fund management team anticipates wrong, there will be huge losses.
Credit risk is also a risk factor associated with bond funds. Higher rated bonds funds possess lower credit risk. You may find lower-rated bonds offering higher yields. Investors should not give up on checking the credit ratings in any situation.
If you are thinking about how to purchase bonds in India, you can buy bonds online from Bonds India.
Investors who are planning to invest for three to five years and want to avoid taking a call on rates can consider dynamic bond funds. Undoubtedly, duration strategy can ensure considerable returns as the fund can be altered based on interest rate changes. However, it is just a slip to cause losses. If you are an investor with a moderate risk profile, you can consider dynamic bond mutual funds. Conservative investors can avoid this online bond investment in India.
Thus, it is a good choice to invest in Dynamic treasury Bond Funds, depending on your risk profile.