Existing investors may hold on to dynamic bond funds

New investors should opt largely for accrual-oriented funds which don't bet on interest rate movements

Investment advisors were recommending dynamic bond funds to investors till as recently as August, when the Reserve Bank of India (RBI) had cut the repo rate by 25 basis points. These are funds where the fund manager changes the average duration of the portfolio actively to benefit from interest-rate changes. They are marketed as all-weather funds. Many of those who followed the experts’ advice would be a worried lot today. The three-month average return of dynamic bond funds is zero while the one-year average is 2.76 per cent, according to data from Value Research. 

The current underperformance of dynamic bond funds