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What are dynamic bond mutual funds and why should investors invest in them?


Investors aiming for diversification of their portfolio are recommended to invest in equities as well as debt securities. Although those who aim for wealth creation opt for equity, the ones with a low-risk appetite are inclined towards debt mutual funds.

There are over a dozen mutual funds that fall in the category of debt funds, out of which nearly half have a long duration tenor.

Here we give a lowdown on dynamic mutual funds, which — as the name suggests — are schemes mandated to invest across tenors.

What are dynamic bonds?

Dynamic bond funds are debt mutual funds which invest across duration. These schemes alter the tenor of the securities in the portfolio in line with expectation on interest rates.

The tenor is increased if interest rates are expected to go down and vice versa.

As on Sept 30, 2023, there are 22 schemes that fall under dynamic bond mutual fund category with total assets under management (AUMs) amounting to 30,470 crore, shows the AMFI data. A year ago, the corresponding figures were 24 schemes with total AUMs amounting to 22,083 crore, as on Sept 30, 2022.

Date                                         No. of schemes  AUMs (crore)
Sept 30, 2022                                  24 22,083
Sept 30, 2023                             22 30,470

(Source: AMFI)

Reasons why investors should invest:

1. Safety: Being debt instruments, these bonds are safer than equity instruments. Although returns are relatively muter, these instruments keep the investment safe and secure.

2. Diversification:Wealth advisors often tell investors to diversify their investment across asset classes i.e., equity and debt instruments. These bonds enable investors to make that happen.

3. Blend:As the name suggests, dynamic bonds are a blend of debt instruments across tenors and alter the tenor of securities in the portfolio in line with expectation on interest rates.

Tenor               Returns (%)
1 years            5.69
2 years           4.10
3 years            4.07

(Source: Morning Star; returns as on Nov 1, 2023)

As a category, dynamic mutual funds have delivered muted returns. In the past one year, the average returns — as a category — hover around 5.69 percent, against 4.10 percent in the past two years, and 4.07 percent in the past three years, shows the Morning Star data.

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Updated: 05 Nov 2023, 12:48 PM IST

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