Calling investors: The name's bond, tax-free bond

“It’s raining bonds” is likely to become the new favourite song for fund managers given the slew of bond issues that are set to hit the market.

Expectations of a fall in interest rates has led to a surge in investor interest in bonds. The ball was set rolling by the recent stellar listing of the National Highway Authority of India’s (NHAI) tax-free bonds on the National Stock Exchange.

According to an article in Business Standard, a large number of fund houses are lining up to launch open-ended dynamic bond funds. IDBI Mutual Fund, Pramerica MF and Union KBC have already done so, two others - Daiwa MF and Principal MF – have filed offer documents with markets regulator Securities Exchange Board of India (Sebi).

[caption id=“attachment_213042” align=“alignleft” width=“380” caption=“One noteworthy point of these dynamic bond funds is that they are able to take advantage of rate cuts or hikes by altering their portfolios.”]  [/caption]

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One noteworthy point of these dynamic bond funds is that they are able to take advantage of rate cuts or hikes by altering their portfolios. In the one-year category, SBI Dynamic Bond emerged as the top performing fund with returns of 12.99 percent. In contrast, the Tata Dynamic Bond A & B was the worst performer with returns of 7.51 and 7.52 percent, respectively.

However, investors should be cautious as sometimes a fund manager can get his or her ‘portfolio churning’ wrong as well. “The debt fund track record of the fund manager and the fund house plays a very important role in deciding which dynamic bond fund one should choose. The investment process and philosophy should be looked at,” Mahendra Jajoo, director and CIO (fixed income) at Pramerica MF, told the newspaper.

Read the rest of the Business Standard article here.