Most debt categories shine in 2012, give above 9% returns as bonds rally

“The outperformance of duration bond funds was more pronounced in the second half of the fiscal year as the commitment to fiscal discipline, the RBI’s open-market operations and expectations of policy rate cuts contributed to a rally in the bond markets,” said Vikrant Mehta, head, fixed income, PineBridge Investments, India.

Long-term interest rates have seen a significant decline. For instance, the 10-year AAA-rated corporate bonds, which were quoting in the 9.50-9.60% range in March, are now quoting at about 8.70-8.85%. On the other hand, the 10-year benchmark yields have moved from about 8.35% to 7.85% in the last three months.

Gilt medium-&-long-term funds topped the debt category with average returns of more than 10.5% in 2012. The category had given returns of just 5.77% in 2011. Dynamic bond funds gave returns of 10.1% in 2012 compared with returns of 8.3% in 2011.

Assets of several dynamic bond funds rose about 400% in CY12 as an uncertain interest rate environment prompted investors to put money in these schemes.

Liquid funds gave returns of 9%-plus in 2012 against 8.5% in 2011. This was because short-term rates remained high for much of the year, especially between January and March, as liquidity remained tight, said experts.

The demand for fixed maturity plans (FMPs) waned as the

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