Why low yield in bond funds

  1. Why bond funds are returning so low in 2017 and 2018 as compared to previous years ?

  2. Is there any chances of interest rates going up in near future?

  3. I started SIP in bond funds 8-9 months back and my total interest is 1.5 % , should I exit or remain invested ? Is it like I have bought these bond funds at chaper price (low NAV, eg Reliance gilt- 24.06 ) and once interest rates will increase , NAV will funds will increase and I will gain drastically ?

@rohan029

  1. Because indian economy is growing , that means inflation is growing. as a result will eat into your interests and debt/funds returns are lowered.

  2. RBI watches the inflation and will adjust interest rates accordingly, but that still wont halt the inflation in a country like india.

  3. Don’t bother with debt funds, invest in equity. Debt funds are good in countries where there is no growth like japan. They have the highest debt in the world because of the very reasons mentioned above. Their economy peaked in the 80s. India has just started.

But why debt funds gave good return in 2016 ?

They did not.

Debt has always given poor returns since equity markets opened up in 90s. Forget 2016.

Generally bond appreciation is indirectly proportional to interest rates, so if interest rates rises we can see bond prices going down to accommodate rise in interest rates.

This is an open ended question as it is totally dependent on over all economy, I mean it depend upon growth in economy, liquidity in system, inflation, country reserves, budget deficit/surplus, currency strength, FII flows etc.

What is your investment horizon? Does you receive fixed coupon or floating coupon? you intention is to receive fixed returns or seeking in appreciation of underlying? Also bond price will depreciate if interest rate rises and viceversa. I am not sure on how redemption will happen, if you can mention exact fund name, I can able to give more info on that.

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Thanks…

  1. So now interest rates are low , so according to inverse proportionality bond rates should b high now ?

  2. I am invested in -
    UTI Dynamic Bond Fund - Direct Plan, Reliance Gilt Securities Fund - Direct and ICICI Prudential All Seasons Bond Fund - Direct Plan

I started SIP 10 months back but my overall gain is extremely low i.e 1% .

I invested with hope of getting 8 % returns as shown in funds historical graph.

Please suggest.

@siva - plz suggest

I thnk many people here think bonds are like bank FD, They are not. Bonds have fallen more than nifty in the last one year.

Bond investors need to look at yield to maturity and duration. For example SBI N5 bonds YTM now is around 8.9%. I will move some FD to bonds at YTM of say 9.5% or above meaning i shd wait for bond prices toFALL.

Govt 10 yr bond YTM.

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Thanks…

YTM means interest I will get if I hold the bond till end.

In my case I have done SIP in debt/bond based MF , means MF will keep on buying different bonds on different YTM and will also sell old bonds in some loss if new interest rates are higher and will lock the money in higher interest rate bonds.

Is my understanding correct ?

Also can you please provide some link which I can refer for understanding bonds and bond based MF’s in some detail.

This book from nse site looks interesting. I hvnt gone thro it. Refer to chapter 13 - bond valuation