Dynamic bond funds, gilt funds ideal now

financialexpress.com:

INDIVIDUALS SHOULD NOW consider investing in long-term debt mutual funds to seize the opportunity for capital appreciation. Once rates fall, the value of long-term bond funds such as dynamic bond funds and gilt funds increases, offering the potential for good returns.

The anticipated decline in gross market borrowings is positive for the bond markets, and the government bonds’ inclusion in the global bond index will open a new source of demand from foreign investors. These factors will enhance the flow to the debt segment and bolster investor confidence.

Bet on dynamic bond funds, gilt funds
The longer the duration of the bond fund, the more it will benefit from falling interest rates. Pankaj Pathak, senior fund manager, fixed income, Quantum Mutual Fund, says the favourable shift in demand-supply mix is driving the long duration bond yield lower. “Long-term bond funds tend to benefit in this kind of market environment. For investors, dynamic bonds are more suitable than most of the other long duration categories due to their flexibility to change portfolio positioning if market environment changes,” says Pathak.

The longer duration of these funds has had a multiplier effect, leading to mark-to-market gains and capital appreciation. Nirav Karkera, head, Research, Fisdom, says current trends suggest that bond yields are likely to decrease further, potentially leading to capital appreciation for investors. “In anticipation of declining interest rates later this year, investors can consider long-duration or gilt funds as preferred options as these funds are perceived as risk-free investments, enhancing their appeal further,” he explains.

Long-duration or gilt funds often offer higher coupon payments compared to