Dynamic Bond Fund: The Reserve Bank of India (RBI) has increased the repo rate i.e. interest rates five times since May . During this, the repo rate has been increased by 225 basis points or 2.25 percent. Inflation has consistently remained around the RBI's ( Reserve Bank of India ) maximum level of six percent. In such a situation, no one is in a position to say anything about what will happen in the future. Most of the experts are recommending investment in Dynamic Bond Funds considering the current uncertainty prevailing at the global and domestic level. There is a possibility of return up to 10 percent in this.
Experts say that there are many schemes available in this category. Among these, ICICI Prudential All Seasons Bond Fund is on top. It is also the largest scheme in terms of assets in this category and has a consistently good track-record of more than 10 years. This scheme extends the period when the capital appreciation in rate of interest is expected to decline. It shortens the period when interest rate increases are expected to reduce the risk of market losses. Any decision taken in this regard is based on an in-house model which takes into account various factors.
Up to 9.3 percent return given on 10 years investment
Due to the decisions taken at the right time, the investors who have maintained their investment in the fund, have benefited from the fund at different times. In three, five and 10 years, this fund has been the top performer in its category by giving 7.1, 7.2 and 9.3 percent returns respectively. The second aspect is based on the interest rate that invests between corporate bonds and G-Secs. Hence, when the interest rates are high, the scheme will behave like a long term scheme and when the interest rates are low, it will behave like an accumulation scheme.
Since its inception in May 2009, the fund has managed the tenure well in various interest rate cycles and has delivered NAV growth even in some headwinds. Whether the interest rate cycle is rising or falling, this fund can adjust itself well to suit the market conditions. Its internal ownership proprietary economic model makes it easy to take investment decisions of this fund. The composition of the portfolio may change depending on the results of the model as the economy keeps changing its gears.
Higher allocation on floating rate
The scheme has a high allocation to floating rate bonds at 38.2 per cent as a means to benefit from rising interest rates. Floating rate bonds are a class of bonds that benefit from any increase in interest rates, as the coupons are reset from time to time. This will translate into good results for the investors. To benefit from better accruals, 29 per cent of the portfolio is allocated to assets that are rated above AA.
What are dynamic bond funds?
Dynamic Bond Funds are a type of debt mutual funds that invest in both debt and money market instruments. This includes Government Securities (G-Sec) and Corporate Bonds of various tenors. In Dynamic Bond Fund, there is no restriction on tenure and maturity. Fund managers invest for different tenures depending on the interest rate scenario. Dynamic debt funds are more volatile as compared to short and medium term debt funds, but have the potential to generate higher returns due to different interest rate scenarios.
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