The benefits of investing in dynamic bond funds

Most investors are clueless about the many advantages that dynamic bond funds offer over other income funds.

In a confusing economic environment, investors are often left wondering about the kind of financial products they should invest in. The most important question to answer is whether one should invest in short-term or long-term funds.

Currently, it is a wiser move to consider ‘dynamic bonds’. In this context, you could consider the Birla Sun Life Dynamic Bond Fund (BSL Dynamic Bond).

- Why invest in dynamic bonds?

A dynamic bond is a debt fund that, as the name suggests, can change as per changes in interest rate movements. The investor’s fund manager can choose the duration of the bond depending on his analysis of the prevailing interest rates. If rates are about to fall, the manager will invest in long-term instruments. Conversely, he may invest a bulk of the investor’s money in short-term products if the rates are likely to rise.

- Why are they advantageous?

Since they can be aligned to suit the investor as per the rate movements, a dynamic bond offers greater returns than static bonds. They insulate the investor from the rise or fall of interest rates because they can be repositioned as per the changing rates. The BSL Dynamic Bond helps you benefit in both cases – when interest rates fall or rise.

- When should you invest in dynamic bonds?

When the situation of debt markets remains in a state of flux or follows a downward trajectory, a dynamic bond fund is the safest investment option. In a situation of high inflation and stagnant interest rates, it can be invested in short term maturity bonds. Conversely, in a sluggish market, it can be invested for long term Government securities, for example. The BSL Dynamic Bond helps those who want to earn an income with capital growth over the short term

- Why are they better than traditional debt funds?

Traditional debt funds require a sense of accuracy on the part of the investor. He must commit to investing by deciding on the future rate trends. This is not seen in a dynamic bond fund, where the investor does not need to juggle with interest rate volatility. However, BSL Dynamic Bond cautions investors that their money is at moderate risk.

- Which dynamic bond fund should you consider?

The Birla Sun Dynamic Bond Fund is an open ended regular income product that invests your money in Government securities, corporate bonds and structured credit instruments. The product invests only in high quality corporate bonds and Government securities. Also you can redeem your money at any time on furnishing a redeem request to the company.