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Business News/ Money / Personal Finance/  How 5-star rated dynamic bond funds are performing: Right time to invest?
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How 5-star rated dynamic bond funds are performing: Right time to invest?

Dynamic Bond Funds are open-ended debt mutual funds that invest in debt and money market securities such as corporate bonds, government securities, etc. with a range of maturities that rely on the kind of securities the fund manager chooses based on the outlook for interest rates.

By predicting the interest rate trend, the fund manager chooses the duration of the dynamic funds. (istockphoto)Premium
By predicting the interest rate trend, the fund manager chooses the duration of the dynamic funds. (istockphoto)

Dynamic Bond Funds are open-ended debt mutual funds that invest in debt and money market securities such as corporate bonds, government securities, etc. with a range of maturities that rely on the kind of securities the fund manager chooses based on the outlook for interest rates. These mutual fund categories are advised for investments with a time horizon of three to five years. Since these mutual funds invest in bonds with varying maturities, the interest rate fluctuations are dependent on the fund returns. By predicting the interest rate trend, the fund manager chooses the duration of the funds. Financial gurus advise investing in these funds because of their flexible duration, which varies dependent on interest rate trends. In the current upward trend of interest rate scenario and key policy, rates are anticipated to climb even further, let's know how 5-star rated dynamic bond funds are performing. 

SBI Dynamic Bond Direct Plan-Growth

The fund was launched on 01-January-2013 and currently, the fund holds a 4-star rating from Value Research and a 5-star from Morningstar. Assets under management (AUM) for SBI Dynamic Bond Direct Plan-Growth have been valued 2299.5 Cr Crores as of June 30, 2022, while the fund's NAV as of August 26, 2022, was 30.69. The past year's returns for the SBI Dynamic Bond Direct Plan-Growth are 3.34% higher than the CRISIL 10 Year Gilt Index of -0.14%, and from its introduction, it has generated returns of 8.18% on average annually. The fund's annualised return over the last five years was 6.65% better than the category average of 5.28%. The fund's annualised return over the past three years has been 4.52% higher than the category average of 3.66%. The expense ratio of the fund 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% higher than the category average of 6.53%.

ICICI Prudential All Seasons Bond Fund Direct Plan-Growth

The fund was launched on 01-January-2013 and currently, the fund has been rated 5-star 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 fund's NAV as of August 26, 2022, was 31.44. The returns of the ICICI Prudential All Seasons Bond Fund Direct Plan during the past year are 4.58%, and since its debut, it has generated an average yearly return of 10.00%. In the last 5 years, the fund has generated an annualized SIP return of 7.69% and 6.38% in the last 3 years much higher than the category average. The fund's top holdings are GOI, DME Development Ltd., Great Eastern Shipping Company Ltd., Embassy Office Parks REIT, and L&T Metro Rail (Hyderabad) Ltd and 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 Plan-Growth

Launched on January 1, 2013, the HDFC Dynamic Debt Fund now has a 5-star rating from Value Research and a 4-star rating from 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 fund's NAV was 78.95. The HDFC Dynamic Debt Fund Direct Plan-Growth returned 2.01% during the previous year, and it has generated returns of 7.73% on average every year since its introduction. The fund outperformed the category average over the past five years, producing an annualised 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 holds an expense ratio of 0.49%. The fund has a yield to maturity return of 6.53% in line with the category average.

Commenting on whether to invest in dynamic bond funds amid the upward trend of interest rates, Mr. DP Singh, Deputy MD & Chief Business Officer, SBI Mutual Fund said “Elevated inflation levels and geo-political issues have changed the dynamics of fixed income markets across the globe. While we are in a rate hiking cycle, the ever-evolving growth inflation dynamics are expected to keep the markets volatile in the near term. During these times of uncertainties, investors should look at funds such as Dynamic Bonds Funds as they have the flexibility to change the duration based on changing interest rates in the market i.e. reduce duration in times of rising interest rates and vice versa."

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

Mr. Nitin Rao, Head Products and Proposition, Epsilon Money Mart said “Dynamic bond funds invest across duration depending on the interest rate view that the fund manager has. Since they are dynamically managed, in terms of risk associated, they are relatively riskier than short and medium-duration funds. If the fund manager expects the interest rate to go down in the near future, dynamic bond funds will invest in long-duration bonds in order 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 further added, “Investors should always invest in line with their risk profile and investment objective. Though, for investing in a dynamic bond fund investors should have a long-term view (minimum 3 years). This will allow the investor to experience the entire interest rate cycle. Also, the customer can get LTCG benefits by staying invested for more than 36 months."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

 

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ABOUT THE AUTHOR
Vipul Das
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for Goodreturns.in (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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Published: 29 Aug 2022, 07:02 PM IST
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