Rising interest rates are bad for mutual funds. When interest rates rise, debt funds will begin to lose due to the inverse relationship between interest rates and bond prices. When rates go up, bond prices go down. Indeed, investors would prefer bonds with higher coupon rates.
If you find all of this very confusing, you can invest in dynamic bond funds. These programs have the freedom to invest in securities and maturities depending on the outlook of the fund manager. So when rates go up, the fund manager can bet on short-term bonds as a rise in rates will affect them marginally.
However, that does not mean that these diets are sure winners. There have been instances where fund managers mistakenly guessed the RBI and suffered losses. In fact, dynamic funds lost their charm after these plans were hit by an unfavorable money market and the lack of firm interest rate hints in 2019.
In short, if you plan to invest over three to five years, but you don’t want to fall back on interest rates, you can bet on dynamic bond funds.
Best dynamic bond funds to invest in 2022
- Kotak Dynamic Bond Fund
- ICICI Prudential All Season Bond Fund
ETMutualFunds.com used the following parameters to prequalify debt mutual fund programs.
Average sliding returns: Rolled daily for three years.
Consistency over the past three years: Hurst Exponent, H is used to calculate the consistency of a fund. The exponent H is a measure of the randomness of a fund’s NAV series. Funds with a high H tend to exhibit low volatility compared to funds with a low H.
i) When H = 0.5, the series of returns is called a geometric Brownian time series. This type of time series is difficult to predict.
ii) When H
iii) When H> 0.5, the series is said to be persistent. The larger the value of H, the stronger the trend of the series
The downside risk: We have only considered the negative returns given by the UCITS for this measure.
X = returns below zero
Y = Sum of all squares of X
Z = Y / number of days taken to calculate the ratio
Downside risk = Square root of Z
Outperformance: Fund return – Benchmark return. The rolling daily rolling returns are used to calculate the performance of the fund and the benchmark index, then the active performance of the fund.
Asset size: for debt funds, the threshold asset size is Rs 50 crore
(Disclaimer: Past performance is no guarantee of future performance.)