3 weeks ago

Dynamic bond funds balance risk and returns, experts advise

Dynamic bond funds balance risk and returns, experts advise
Go for dynamic bond funds to balance your risks & returns · financialexpress.com

Sometimes banks and big companies need money to grow, so they borrow it and give back a promise called a bond.

When you buy a bond fund, many people put their money together and lend it out through these promises.

The Reserve Bank of India, the country's money boss, said it is keeping its money rules the same for now.

Because of that, money experts say it is a good time to spread your bond money around instead of putting it all in one place.

Short-term money market funds are like a safe piggy bank, because you can get your money back very quickly.

Long-term target maturity funds are like planting a tree that grows steadily and pays you year after year.

Dynamic bond funds are special because an expert moves your money between short and long bonds as conditions change.

Experts call this the barbell approach, because you hold weights on both ends and skip the middle.

This way, people can earn more from their savings without taking too much risk.

Key facts

RBI policy stance
Neutral
Short-term option
Money market and liquid funds with T+1 liquidity
Long-term option
Target maturity funds (average maturity of one to 10 years)
Balanced option
Dynamic bond funds, which may outperform other thematic debt funds over 4-5 years
Recommended strategy
Barbell approach: short and long maturities, avoiding medium-term bonds
Extra yield on AAA public sector bonds
50-70 basis points over similar government securities
Issuers mentioned
Rural Electrification Corporation and National Highways Authority of India

Quotes

Sandeep Yadav

Head of Fixed Income, DSP Mutual Fund

“"A barbell strategy could be beneficial for investors as they can take advantage of the steepness in the curve which has currently happened in anticipation of foreign currency non-resident flows."”
financialexpress.com
“"It is the same philosophy, minus the execution burden on the investor and is tax‑efficient as well."”
financialexpress.com

Sources

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