Performance of dynamic 5-star bond funds: the right time to invest?

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Dynamic Bond Funds are open-end debt mutual funds that invest in debt and money market securities such as corporate bonds, government securities, etc. with a range of maturities that depend on the type of securities the fund manager chooses based on the outlook for interest. rates. These mutual fund categories are recommended for investments with a time horizon of three to five years. Since these mutual funds invest in bonds of varying maturities, fluctuations in interest rates depend on the returns of the fund. By predicting the evolution of interest rates, the fund manager chooses the duration of the funds. Financial gurus advise investing in these funds because of their flexible duration, which varies with changes in interest rates. In the current upward trend of interest rate scenario and key policy, rates are expected to rise further, let’s see how dynamic 5-star rated bond funds perform.

SBI Dynamic Bond Direct Growth Plan

The fund was launched on January 1, 2013 and currently the fund is rated 4 stars by Value Research and 5 stars by Morningstar. SBI Dynamic Bond Direct Plan-Growth Assets Under Management (AUM) has been assessed 2299.5 Cr Crores as of June 30, 2022, while the net asset value of the fund as of August 26, 2022 was 30.69. Last year returns for the SBI Dynamic Bond Direct Plan-Growth are 3.34% higher than the CRISIL 10 Year Gilt Index by -0.14%, and since its introduction it has generated returns of 8 .18% on average per year. The fund’s annualized return over the past five years was 6.65% above the category average of 5.28%. The fund’s annualized return over the past three years was 4.52% above the category average of 3.66%. The fund’s expense ratio is 0.87% and its top holdings include GOI, HDFC Bank Ltd., Reliance Industries Ltd., Axis Bank Ltd. and Canara Bank. The fund has a yield to maturity (YTM) or internal rate of return (IRR) of 6.56% above the category average of 6.53%.

ICICI Prudential All Seasons Bond Fund Direct Plan-Growth

The fund was launched on January 1, 2013 and currently the fund has been rated 5 stars by Value Research and Morningstar. Assets Under Management (AUM) for ICICI Prudential All Seasons Bond Fund Direct Plan-Growth were 5,691 crores as of June 30, 2022, while the net asset value of the fund as of August 26, 2022 was 31.44. The returns of the ICICI Prudential All Seasons Bond Fund direct plan over the past year are 4.58%, and since inception it has generated an average annual return of 10.00%. Over the past 5 years, the fund has generated an annualized SIP return of 7.69% and 6.38% over the past 3 years, well above the category average. The fund’s main holdings are GOI, DME Development Ltd., Great Eastern Shipping Company Ltd., Embassy Office Parks REIT and L&T Metro Rail (Hyderabad) Ltd. The fund has an expense ratio of 0.62%. The fund has a yield to maturity (YTM) or internal rate of return (IRR) of 7.16%.

HDFC Dynamic Debt Fund Direct Growth Plan

Launched on January 1, 2013, the HDFC Dynamic Debt Fund is now rated 5 stars by Value Research and 4 stars by Morningstar. As of June 30, 2022, the HDFC Dynamic Debt Fund Direct Plan-Growth had assets under management (AUM) at 476 Crores, and as of August 26, 2022, the net asset value of the fund was 78.95. The HDFC Dynamic Debt Fund Direct Plan-Growth has generated a return of 2.01% over the past year and has generated returns of 7.73% on average each year since its introduction. The fund has outperformed the category average over the past five years, producing an annualized SIP return of 6.23% and 6.06% for the past three years, respectively. GOI, State Bank of India, Reserve Bank of India, Mahanagar Telephone Nigam Ltd. and Reliance Utilities and Power Pvt. ltd. are among the fund’s top holdings, and the fund currently has an expense ratio of 0.49%. The fund has a yield to maturity of 6.53% in line with the category average.

Commenting on the advisability of investing in dynamic bond funds amid the rising interest rate trend, Mr. DP Singh, Deputy Managing Director and Chief Commercial Officer, SBI Mutual Fund, said: “The levels of High inflation and geopolitical issues have changed the dynamics of fixed income markets. worldwide. Although we are in a cycle of rising rates, the ever-changing growth and inflation dynamics should keep markets volatile in the near term. In these uncertain times, investors should look to funds such as Dynamic Bonds Funds as they have the ability to change duration based on changing market interest rates, i.e. say to reduce duration in times of rising interest rates and vice versa. »

“As we are in the middle of a rate hike cycle and policy rates are expected to rise further, investors can spread their investments over the next six to twelve months. Systematic investing will help reduce the impact of volatility of the market by accumulating higher units in times of rising interest rates.These higher units can then help generate capital gains when the rate cycle reverses.Investors should remain invested in these funds for at least least 3 years or more to reduce the impact of short-term volatility and generate tax-efficient returns,” he added.

Mr. Nitin Rao, Head of Products and Proposition, Epsilon Money Mart said, “Aggressive bond funds invest for duration based on the fund manager’s view of interest rates. As they are dynamically managed, in terms of associated risk, they are relatively more risky than short and medium duration funds. If the fund manager expects interest rates to fall in the near future, aggressive bond funds will invest in longer duration bonds to benefit from capital appreciation. In a rising interest rate scenario, the fund manager will invest in short duration bonds to reduce interest rate risk.

Mr. Rao added: “Investors should always invest according to their risk profile and investment objective. However, to invest in a dynamic bond fund, investors must have a long-term view (minimum 3 years). This will allow the investor to experience the full interest rate cycle. In addition, the client can obtain LTCG benefits by remaining invested for more than 36 months.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint.

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