I have one query regarding mutual funds…bond funds.
The underlying asset of any bond mutual funds are bonds of a company
or of government of various maturities and it is also true that as
interest rates ( or yield) increases the value of bond falls.
When the value of bonds falls, the asset of the bond mutual funds and
corresponding NAV of the mutual fund should also fall..( which holds
that bonds in their portfolio). Is it true?
Now, as we know that RBI has increased interest rates last year a
number of times ..this means last year the prices of bonds should fall
and NAV of bond funds should also fall. But, as I see from the
historical data of all the bond funds..their NAV is increasing
continously for last 5 years.? Why it is so? Why the NAV is not
falling during the time when RBI was increasing interest rates?
Kindly answer this query as this will help me to take a decision
towards investing in bond mutual funds. ( I am thinking that as the
interest rates are towards downward trend…this should increase the
value of underlying assets of debt fund and should appreciate NAV of
these fund and shall I expect better than average debt fund return of
7-8%).