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Just as the name suggests, Dynamic Bond Funds are dynamic in nature, with regard to the composition and maturity of the investment portfolio. Under these funds, the fund managers are allowed to make changes to the trade instruments with different maturity periods as per the presumed changes in their interest rates. However, there could also be situations when no actions are taken by the fund managers in between the interest rate changes. This makes Dynamic Bond Funds ideal for those who wish to experiment with the interest rate cycles.
The ultimate objective of a Dynamic Bond Fund is to deliver quality returns, irrespective of the fluctuations in the market. For instance, a fund manager might increase the holding in long term instruments in a bullish market, or may decrease the short-term instruments in his portfolio during a bearish market. All the changes depend on the fund manager’s understanding of the market. Since he is allowed to make changes to the composition of funds, these funds are called Dynamic Bond Funds.
Why Invest in Dynamic Bond Funds?
Dynamic Bond Funds are considered ideal for investors who are willing to accept a moderate amount of risk and willing to invest for a time period of around 3 to 5 years. However, while investing it must be taken into consideration that dynamic bond funds and interest rates go hand in hand.
Unlike all other debt funds, dynamic funds do not need to adhere to any investment mandates. These funds can invest from long-term securities to securities as short as one-month duration, depending upon the fluctuations in the interest rates.
Dynamic bond funds can shift from long-term to mid-term and/or short-term securities on a very short notice. This offers the investors of these funds a chance to safeguard their portfolio from the fluctuations in interest rates.
For instance, if the fund manager anticipates that the interest rates are about to fall, it can increase its portfolio tenure. Or if s/he thinks that the interest rates are touching the lower grounds, it can reduce the portfolio’s average maturity instantly.
Dynamic Bond Funds might be Risky
Similar to all the other financial instruments, dynamic bond funds carry risks of their own. In case the fund manager fails to reduce the portfolio as and when required, the profits earned could be heavily affected.
The profits earned from dynamic bond funds are majorly dependent on the fund manager. His view and understanding of the interest rate is extremely crucial. For instance, if the RBI takes a step that does not incline with the manager’s expectation of the returns, then the profits could be severely impacted.
Fluctuations in the macroeconomic factors like oil prices, fiscal deficit, government policies, etc. affect the returns from these funds.
Difference Between Gilt Funds and Dynamic Bond Funds
The fund manager handling gilt funds can only change the maturity of the funds while the managers of a dynamic bond fund can make changes in the entire portfolio, making shifts from long-term to mid-term or small-term funds, depending upon their returns.
Best 5 Dynamic Bond Funds to Invest in 2020
| Scheme Name | AUM(CR) | 1Y Return | 2Y Return | 3Y Return |
| ICICI Prudential All Seasons Bond Fund | 2707 | 11.59% | 7.19% | 9.93% |
| IDFC Dynamic Bond Fund | 1962 | 13.61% | 6.98% | 9.47% |
| Franklin India Accrual Dynamic Fund | 3910 | 9.49% | 8.79% | 9.91% |
| ICICI Prudential Balanced Advantage Fund | 29104 | 12.59% | 11.54% | 10.29% |
| Aditya Birla Sun Life Balanced Advantage Fund | 2802 | 9.40% | 9.31% | 9.33% |
1. ICICI Prudential All Seasons Bond Fund
| 1-year | 3-year | 5-year | |
| Return | 10.92% | 8.69% | 10.75% |
| Benchmark | 10.86% | 6.79% | 7.92% |
(Data as on August 29, 2019; Source: Value Research)
Net Asset Value: Rs. 2,791 Crore (as on July 31, 2019)
Launch Date: January 20, 2010
Fund Manager: Manisha Banthia (at the helm since January 2013), Anuj Tagra (at the helm since January 2015)
2. IDFC Dynamic Bond Fund
| 1-year | 3-year | 5-year | |
| Return | 15.47% | 8.99% | 10.44% |
| Benchmark | 10.86% | 6.79% | 7.92% |
(Data as on August 29, 2019; Source: Value Research)
Net Asset Value: Rs. 2,068 Crore (as on July 31, 2019)
Launch Date: December 3, 2008
Fund Manager: Suyash Choudhary (at the helm since January 2013)
3. Franklin India Accrual Dynamic Fund
| 1-year | 3-year | 5-year | |
| Return | 9.32% | 9.32% | 10.40% |
| Benchmark | 10.86% | 6.79% | 7.92% |
(Data as on August 29, 2019; Source: Value Research)
Net Asset Value: Rs. 3,960 Crore (as on July 31, 2019)
Launch Date: March 5, 1997
Fund Manager: Umesh Sharma (at the helm since January 2013), Sachin-Padwal Desai (at the helm since January 2013), Santosh Kamath ((at the helm since February 2015)
3. ICICI Prudential Balanced Advantage Fund
| 1-year | 3-year | 5-year | |
| Return | 3.55% | 8.58% | 10.04% |
| Benchmark | -2.33% | 9.65% | 8.11% |
(Data as on August 29, 2019; Source: Value Research)
Net Asset Value: Rs. 27,798 Crore (as on July 31, 2019)
Launch Date: December 30, 2006
Fund Manager: Dharmesh Kakkad (at the helm since September 2018), Ihab Dalwai (at the helm since January 2018), Manish Banthia (at the helm since January 2013), Rajat Chandak (at the helm since September 2015), Sankaran Naren (at the helm since July 2017)
4. Aditya Birla Sun Life Balanced Advantage Fund
| 1-year | 3-year | 5-year | |
| Return | 1.54% | 7.48% | 9.10% |
| Benchmark | -2.33% | 9.65% | 8.11% |
(Data as on August 29, 2019; Source: Value Research)
Net Asset Value: Rs. 2,697 Crore (as on July 31, 2019)
Launch Date: April 25, 2000
Fund Manager: Vineet Maloo (at the helm since August 2015), Mohit Sharma (at the helm since April 2017)