Long duration bond funds are topping a 5-year return chart. Is it time to invest?
In the five-year horizon, long duration bond funds have beaten every other mutual fund category. During the same period, these debt schemes have beaten even the mid-cap and small-cap categories. In the five years, long duration bond funds are offering 9.93 percent returns, highest return among all the equity and debt mutual fund categories. In the five-year horizon, mid-cap schemes have offered 8.93 percent returns and small-cap schemes have offered 8.94 percent.
Should mutual fund investors add these debt schemes to their portfolio?
Because of the higher volatility associated with these schemes most mutual fund managers and advisors do not recommend these schemes to average investors. Mutual fund advisors convey to most of their customers who put resources into debt schemes have a moderate hazard profile, and long length plans are not implied for them.
Gaurav Monga the director of PxG consultants said that these plans get affected the most in the term bend. You can’t put resources into these plans for a few years like for two or three years, if you can take instability and need to create alpha in these plans, you ought to have in any event 4-5 years in hand.
Pankaj Pathak the senior fund manager quantum mutual fund said that in the interest rate cycle, long-duration schemes are extremely sensitive to changes. When all other debt fund categories were faring better, fund managers also point out that long-duration bond funds were offering negative returns last year. My advice is that don’t look at these returns in isolation. These historical returns shouldn’t be your motivation to invest in these schemes Historically, at whatever point debt schemes have given extraordinary returns in a single year, they haven’t imitated it in the following next year.
Mutual fund managers say the rise in crude oil prices will impact these the most. To yield the movement they believe that these schemes are extremely sensitive. when the crude oil inched up and yields also rose to 6.71 percent, these schemes have given 0.82 percent returns, in the last one week. Lakshmi Iyer, CIO debt and Co-head product, Kotak Mutual Fund said that If the crude oil prices go up and sustain between 70-75, we will see the yields moving up which is bad news for all duration funds, especially the long duration and gilt category.
Fund managers believe that the RBI might keep rates lower or even cut the rates further, Soon. This is good news for the long duration funds. Anyways experts believe that from here on investors shouldn’t expect another 20 percent returns. Pankaj Pathak also says we have over and over observed that the market hasn’t had the option to see where the rates have bottomed. This is a reason why dynamic bond funds couldn’t do extraordinary attempt. To accept that you will gain this 20 percent and get out is unimaginable. Likewise, to expect another 20 percent is by and large excessively aggressive and that will not happen says, Pankaj Pathak
Fund managers accept that if you have the hazard craving and need to produce alpha over a more longer investment horizon, these plans can be a piece of your portfolio. “If you can take the instability and remain for long, these plans can be a 20-30 percent of your portfolio, contingent upon how much unpredictability you can take. These plans will give you negative returns likewise, you must know about that. The majority of your obligation portfolio ought to be short to medium length supports beat up with corporate bond funds and liquid funds,” says Lakshmi Iyer.