- Date : 01/09/2022
- Read: 2 mins
Debt funds become attractive as interest rates rise!
In the rising interest rates scenario, bond funds have become attractive. Dynamic bond funds or a category of bond funds. Dynamic bond funds allow the investment manager to invest across securities and maturities of debt instruments. This means that the investment manager can benefit from his/her understanding of the interest rate markets. The fund manager can invest in short-term securities if the interest rates are rising.
Despite the obvious benefits, giving the power to the fund manager is a double-edged sword. If the fund manager is not able to guess the direction of the interest rates, these funds can underperform the benchmark debt instruments as well. In 2019, when the interest rate markets were very dynamic, these dynamic bond funds underperformed the markets and lost the favour of the investors. Therefore, if you are investing for 3-5 years, you can invest in dynamic bond funds to benefit from the change in the interest rates. Here, you do not need to take a call on the interest rate markets, as the fund manager will take the call on your behalf.
Related: Best debt funds to invest in India
Best dynamic bond funds for 2022
The best dynamic bond funds should be carefully selected after ensuring that the long-term returns of the funds are steady. You require consistent returns rather than great returns in one particular year. If the dynamic bond fund gets you consistent returns, you can be sure that the fund manager is more reliable. The best dynamic bond funds and the returns are given below:-
What should you do?
If you are looking for long-term returns from debt instruments, you should stick to dynamic bond funds as you need not take a call on the interest rates. The call on the interest rates will be taken by the fund manager on your behalf. This ensures that you get consistent returns without timing the markets yourself. The fund managers have the necessary skill set and the team to take a call on the interest rate scenario.