Should you choose a dynamic bond fund? If yes, why?
You may consider investing in the right dynamic bond fund India which comes with plenty of benefits for investors. The funds are dynamic by way of their maturity profile and composition alike. The key aim of these dynamic bond funds India is to offer the best possible or optimal returns across both falling and rising scenarios in the market. This is considerably dependent upon the decisions taken by the fund manager along with the overall management of the portfolio in turn. These funds usually come with sizable assets under management or AUM which can go up to a portfolio worth several thousands of crores as well. There may sometimes be a little gap between changes in rates of interest. This may lead to an impact on income of investors in bonds. Hence, these funds are great choices for those who are desirous of riding the cycles of interest rates. Fund managers here make dynamic trades of instruments with diverse maturity periods based on the anticipated rate changes.
For example, in a falling interest rate regime, a fund manager will naturally increase his/her holdings in gilts or similar long-term market instruments. You should check out the best dynamic bond fund in India based upon your specific needs and requirements. An ideal fund will be one where risks are moderate and the investment horizon is 3-5 years on an average. The SIP (systematic investment plan) methodology is highly essential since this will enable combating market volatility superbly while you should also keep in mind that returns from these funds are majorly dependent upon movements of interest rates.
The best dynamic bond fund India- Key aspects and attributes
A dynamic bond fund India will reap rewards if you remain invested for an extended duration in order to minimize risks in the short term. These funds are naturally vulnerable to specific risk types like several other kinds of market instruments. These funds are superior to short term counterparts since they are not able to make use of duration based strategies. However, if the manager is not able to lower the portfolio as needed, the profits earned earlier may be impacted as well.
Investors should remain invested for a minimum period of 3 years for getting indexation benefits on their capital gains. In this scenario, these funds are comparatively different from other kinds of debt funds. This is owing to potential interest cycle shifts which may create higher incidence of taxation as well. Prices of bonds will remain inversely proportional to changing rates of interest. Hence, if the rate of interest is going up, then the bond cost will come down and vice versa. With falling rates of interest, prices of bonds will rally on the basis of the maturity that remains. The fund manager may also hold medium-term and short-term corporate bonds which generate interest income additionally. Dynamic bond funds may easily switch to mid-term or short-term market securities from long-term securities without any hassles. Opt for a mixture of dynamic bond funds with income accrual funds for getting returns steadily while staying away from NFOs or new fund offers in dynamic bonds. Choose funds with a track record of good performance over at least 5 years.
