I want to invest in a dynamic bond fund. What should be the ideal period of holding and what are the risks?
—R S Joshi
Dynamic bond funds have the ability / flexibility to invest in bonds or government securities across duration buckets based on the fund manager’s views. If the manager holds a view that long-term interest rates would move down, he can invest in bonds / government securities with long duration to benefit from a fall in interest rates. Conversely, if he holds a view that interest rates are expected to move up he can reduce the duration of the portfolio. At times, managers have been known to take credit calls as well in these strategies, i.e., investing lower rated bonds to earn higher yields. Given the broad flexibility in mandate, dynamic bond funds can be considered as ‘all weather’ debt funds and can be held for long periods such as three to five years or even more. While investing, one needs to assess the skill sets of the manager; one indicator could be to understand how well they have navigated various interest rate cycles in the past. One should also consider the credit quality of the underlying portfolio and whether that aligns well with one’s views, the expense ratio and exit load structure (if any).
Is it safe to invest in international equity funds via Indian mutual funds?
Mutual fund companies in India are regulated by SEBI, and the licence to run such companies is accorded after the required due diligence by the regulator. Hence, international equity funds which are offered by these fund companies are safe from the risk of fraud. However, like other investments they are subjected to investment risk. International funds provide an opportunity to diversify your portfolio across geographies giving exposure to varied economic growth drivers. In addition to the underlying asset based return, these funds also gain if the Indian Rupee depreciates against the currency in which the underlying assets are denominated. Exposure to international funds could be about 5-25% of your portfolio depending upon your investment horizon and risk suitability. While investing in international funds, check the prevailing valuations of the underlying regions that the fund invests in.
The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to email@example.com