March 27, 2012 8:32 pm
Can some kind hearted soul explain Birla Dynamic Bond Fund. I have a surplus of 25000 with me now. Can I invest in it? What kind of returns can I expect after one year?
You mentioned —
“The returns on very short term funds would be much lower as their prices won’t fluctuate that much with interest rates as of mid-long duration bonds. The same goes with FMPs as well.”
Did you calculated the inflation adjusted tax benefit that we get in case of FMP ?
If we buy FMP now i.e. before 31-Mar-2012 and sell after 01-Apr-2013 you will get two years inflation adjusted tax benefit.
Dear Sha Faisal, Please do not target any return figure in your debt investments.
I would rather like to first explain how a bond price works. The price of a bond is inversely proportionate to the RBI’s interest rate situation. If RBI reduces the interest rates, the prices of bonds go up. Hence in an upward interest rate cycle, bond prices will reduce and show such mutual funds would show negative returns. However, the situation now is that the interest rates are at their peak and the only course which they can take is go down. I am very hopeful that interest rates in next couple of quarters would be lower than now. If that happens, the bond prices will shoot up and the Bond mutual funds would show postive returns.
Hence, your 1 year investment period is seems quite adequate for investment into BSL Dynamic Bond fund. The returns on very short term funds would be much lower as their prices won’t fluctuate that much with interest rates as of mid-long duration bonds. The same goes with FMPs as well.
Also check for FMP’s. As your horizon is 1+ year. You will get good tax advantage in FMP.
BSL Dynamic Bond Fund is definitely a good option and you can maybe expect around 10% return in 1 year (around 2000 to 2500)
However since your timeframe is 1 year as indicated by you in the question, I suggest going for BSL Ultra Short-term fund. Returns may not be as high as the bond fund, but risk is also less
Thanks for your inputs.
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