up to ₹46,800 easily
0% commission • Earn upto 1.5% extra returns
Best Dynamic bond funds are a class of mutual funds whose portfolio is dynamically managed depending on the market and economic conditions to provide investors with the best returns. We have covered the following in this article:
Dynamic bond funds are a type of debt mutual funds that invest in bonds with different maturity periods. The maturity of these funds is modified on the basis of the market conditions in order to reap the best returns. These funds are suitable for those investors who are willing to stay invested for a long period of time and are not ready to assume higher levels of risk. The fund managers of dynamic bond funds alter the portfolio of these funds by reducing the exposure to bonds that are not performing as expected to and increase the exposure to those that are doing well. These funds invest up to 65% of their portfolio in equities while the debt composure is restricted to under 35%.
The table below shows the top-performing dynamic bond funds based on the past 3-year and 5-year returns:
|Fund||3-Year Performance||5-Year Performance||Link|
Investing in dynamic bond funds is suitable for those investors that look at benefiting from the changing economic and market conditions. As these mutual funds invest in several asset classes, you get the benefit of diversification. Dynamic bond funds are suitable for those with an investment horizon of at least three years. Investing in these funds is suitable for novice investors. These funds give them a glimpse of what both equity and debt funds are capable of. Like any other investment option, even dynamic bond funds are not absolutely safe. A dynamic bond fund carries moderate levels of risk. You may get started with a monthly SIP.
As dynamic bond funds are a class of debt funds, they are essentially taxed like any other debt fund. The dividend offered by these funds are added to your overall income and taxed as per the tax slab rate you fall under. This is known as the classical way of taxing dividends in the hands of investors. Capital gains realised on selling the units of these funds within a holding period of three years are termed short-term capital gains. These gains are added to your overall income and taxed at the slab rate you fall under. Long-term capital gains are realised on selling your fund units after a holding period of three years. These gains are taxed at 20% after indexation.
Dynamic bond funds carry higher levels of risk than liquid and overnight funds. This is because the fund manager modified the asset allocation of the portfolio depending on the prevalent economic and market conditions, and the moves made by the fund manager may not always work in the favor of investors. The debt assets of dynamic bond funds carry credit risk and liquidity risk. Credit risk is the possibility of the issuers of the securities not standing by their obligations of paying interest (coupon) and repaying the principal invested at maturity. Liquidity risk is the possibility of the fund manager being unable to sell the underlying assets without taking a significant hit. The equity-linked assets of the dynamic bond funds are affected by market volatility, market risk and concentration risk.
The following are some of the things an investor should consider while investing in dynamic bond funds:
The following are some of the advantages of investing in a dynamic bond fund: