Best dynamic bond mutual funds to invest in 2019

Dynamic bond funds are meant for debt mutual fund investors who do not want to take calls on the interest rate movements in near term. Interest rate changes have a significant impact on debt funds, especially long-term and gilt schemes.

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Here is the monthly update on our recommended dynamic bond funds. There is a change in our recommendation list. We have removed UTI Dynamic Bond Fund from our list in November. The scheme has under-performed its benchmark and the category in the last one-, three-, five- and seven-year periods.

UTI Dynamic Bond Fund failed to manage its downside as well. The scheme fell more than its benchmark in down markets in the last three years and five years. The scheme is a risky one in the category and the existing investors are advised to move out systematically.

  • 9.78%Annualized Return for 3 year
  • >5 years Suggested Investment Horizon
  • 8.0 YearsTime taken to double money
  • 9.15%Annualized Return for 3 year
  • >5 years Suggested Investment Horizon
  • 6.9 YearsTime taken to double money
The scheme manages total assets worth Rs 536 crore as on October end.


Dynamic bond schemes are meant for debt mutual fund investors who do not want to take calls on the interest rate movements in the near term. Interest rate changes have a significant impact on debt mutual funds, especially long-term debt schemes and gilt schemes.

Many mutual fund advisors are recommending dynamic bond funds to their clients because of the uncertainties in the money market. Despite consecutive rate cuts by RBI, most money market participants are waiting for the budget for firm cues on economic number and government's borrowing plan. Many mutual fund advisors believe that retail investors are better off in dynamic bond funds.

They argue that if an investor is unable to take a call on interest rates and change debt mutual fund allocations accordingly, he or she is better off in a dynamic bond fund. The fund manager has the freedom to invest across the debt universe and juggle investments based on his view of the economy and interest rate.
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However, this doesn't mean that these schemes are sure bets. If the fund manager takes a wrong call, the schemes may be hit badly. For example, there have been instances when dynamic fund managers failed to anticipate RBI move and their schemes bled heavily. Dynamic bond funds were hit badly last year because of the uncertainties in the money market and absence of firm cues about the interest rate movements. However, the category has stabilised lately. The dynamic bond fund category is offering 9.01 per cent returns in one year. These schemes returned 5.88 per cent in three years and 7.60 per cent in five years.

Finally, if you want to leave the job of taking calls on interest rates and duration in your portfolio to a fund manager, you can consider investing in these dynamic bond funds: Kotak Dynamic Bond Fund, Franklin India Dynamic Accrual Fund and ICICI Prudential All Seasons Bond Fund.

Best dynamic bond funds to invest in 2019

  • Kotak Dynamic Bond Fund
  • Franklin India Dynamic Accrual Fund
  • ICICI Prudential All Seasons Bond Fund

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Methodology:
ET.com Mutual Funds has employed the following parameters for shortlisting the debt mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
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i)When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii)When H <0.5, the series is said to be mean reverting.
iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.
Asset size: For Debt funds, the threshold asset size is Rs 50 crore
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