How Dynamic Bond Funds with 5-Star Rating are performing: Right time to invest?

SBI Dynamic Bond Direct Plan-Growth

The fund was launched on 01-January-2013 and currently, the fund has 4-star rating from Value Research and 5-star from Morningstar. SBI Dynamic Bond Direct Plan – Asset Under Management (AUM) rated for growth 2299.5 crores as on June 30, 2022, while the NAV of the fund as on August 26, 2022 was 30.69. The last year return for SBI Dynamic Bond Direct Plan-Growth is 3.34% higher than CRISIL’s 10-Year Gilt Index of -0.14%, and since its inception, it has given an average annualized return of 8.18%. The fund’s annualized return of 5.65% in the last five years was better than the category average of 5.28%. The fund’s annualized returns over the last three years have been 4.52% higher than the category average of 3.66%. The fund has an expense ratio of 0.87%, and its top holdings include Government of India, HDFC Bank Ltd., Reliance Industries Ltd., Axis Bank Ltd. and Canara Bank. The Yield to Maturity (YTM) or Internal Rate of Return (IRR) of the fund is 6.56%, which is 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 is rated 5-star by Value Research and Morningstar. ICICI Prudential All Seasons Bond Fund Direct Plan-Growth Were Asset Under Management (AUM) 5,691 crore as on June 30, 2022, while the NAV of the fund as on August 26, 2022 was 31.44. ICICI Prudential All Seasons Bond Fund Direct Plan has a return of 4.58% during the last year, and since its inception, it has generated an average annual return of 10.00%. Over the last 5 years, the fund has generated annual SIP returns of 7.69% and 6.38% in the last 3 years which is much higher than the category average. The fund’s top holdings are GOI, DME Development Limited, Great Eastern Shipping Company Limited, Embassy Office Parks REIT, and L&T Metro Rail (Hyderabad) Limited 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 1st January 2013, HDFC Dynamic Debt Fund now enjoys a 5-Star Rating from Value Research and 4-Star Rating from Morningstar. As on June 30, 2022, HDFC Dynamic Debt Fund Direct Plan-Growth had Assets Under Management (AUM) 476 crores, and as on August 26, 2022, the fund’s NAV was 78.95. HDFC Dynamic Debt Fund Direct Plan-Growth delivered 2.01% returns during the last year, and has given an average return of 7.73% every year since its inception. The fund outperformed the category average over the last five years, generating annual SIP returns of 6.23% and 6.06% respectively for the last three years. Government of India, State Bank of India, Reserve Bank of India, Mahanagar Telephone Nigam Limited, and Reliance Utilities & Power Pvt. Ltd. are among the fund’s top holdings, and the fund currently has an expense ratio of 0.49%. The Yield to Maturity return of this fund is 6.53% in line with the category average.

Commenting on investing in Dynamic Bond Funds amid the rise in interest rates, DP Singh, Deputy MD & Chief Business Officer, SBI Mutual Fund said, “Increased inflation levels and geopolitical issues have affected the fixed income markets. dynamics has changed. Worldwide. While we are in a rate hike cycle, the ever-evolving inflation dynamics is expected to keep the markets volatile in the near term. During this time of uncertainties, investors should look at funds like dynamic bond funds as they have the flexibility to change the duration based on the changing interest rates in the market i.e. reducing the 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 may reduce their exposure over the next six to twelve months. Systematic investing will help mitigate the effects of market volatility by accumulating higher units in times of rising interest rates. These higher units can help generate 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.”

Nitin Rao, Head Products & Proposals, Epsilon Money Mart, said, “Dynamic Bond Funds invest over a period of time based on the interest rate that the fund manager holds. Since they are dynamically managed, in terms of risk , they are relatively risky as compared to short and medium term funds.If the fund manager expects interest rates to decrease in the near future, dynamic 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 shorter duration bonds to hedge the interest rate risk.”

Mr Rao further added, “Investors should always invest according to their risk profile and investment objective. However, investors should have a long-term (minimum 3 years) perspective to invest in Dynamic Bond Funds. Will allow you to experience interest rate cycles. Also, the customer can get LTCG benefits by staying invested for more than 36 months.”

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

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