Investors with a two to three years holding period should consider adding their allocation to dynamic bond funds to benefit from higher yields on medium to long-term bonds, said Pankaj Pathak, fund manager, Quantum Mutual Fund, in his monthly debt view for September.
Dynamic bond funds have the flexibility to change the portfolio positioning as per the evolving market conditions. This makes dynamic bond funds better suited for long-term investors in this volatile macro environment.
“Investors with shorter investment horizons and low-risk appetites should stick with liquid funds. With an increase in short-term interest rates, we should expect further improvement in potential returns from investments in liquid funds,” he said.
“Since the interest rate on bank saving accounts are not likely to increase quickly while the returns from the liquid fund are already seeing an increase, investing in liquid funds looks more attractive for your surplus funds,” he added.
Investors with a short-term investment horizon and with little desire to take risks should invest in liquid funds which own government securities and do not invest in private sector companies which carry lower liquidity and higher risk of capital loss in case of default, said Pathak.