Dynamic bond fund does what an individual retail investor may find difficult to do i.e dynamically alter the allocations between long-term and short-term bonds to take advantage of the direction of interest rates.
Dynamic bond funds increase or decrease the portfolio’s life span, being aimed at taking advantage of the direction of interest rates.
Interest rates have been volatile recently, and this has given the fund manager of the dynamic bond funds an opportunity to play tactically in the markets while simultaneously maximising the benefits for the investors.
If we look at the performance history, the dynamic bond funds have performed better than the short-term debt funds as well as the debt funds with a long-term investment horizon, when the interest rates have fallen.
Retail investors find it difficult to predict the interest rates and here is where the dynamic bond fund plays a crucial role. The fund manager will take a call on investor’s behalf and manage tactically the interest rate risk with an aim of earning reasonable returns.
Having said that, investors are well advised to study the fund manager’s track record as even the fund manager can go wrong and may underperform.
Systematic investment is advised even for dynamic bond fund and it naturally eliminates any interest rate risk or market timing risk while investing in the bond fund.
Birla Sun Life Dynamic Bond Fund - Retail Plan, Quantum Dynamic Bond Fund and UTI Dynamic Bond Fund are some of the top performing dynamic bond funds available for retail investors. These funds have managed to generate returns ranging from 10.3% to 14% in a one year time frame.
With such impressive performance statistics, a quality dynamic bond fund can be a part of one’s diversified portfolio which gives full justice to asset allocation as well.