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What Are Dynamic Bond Funds And How It Is Different From Income Funds?


Our needs keep on growing with the day to day. But at the same time income sources are constant. So, we have to plan our portfolio in such a manner that our present and future needs can be comfortably met. And for that we take the help of best available investment plans. But in the recent few years, we have seen that RBI has been changing interest rates due which the planned returns are not available. In that situation, you can invest in a better option called Dynamic Bond Funds (DBF).

As the name clearly signifies, Dynamic Bond Funds are dynamic in nature in terms of maturity period and interest rates. This is one of the very good options for investors who prefer a lower risk with good returns and also do not have time to keep a market watch.

How DBF Investments Works?

Generally, the bond funds have almost a fixed proportion for the types of underlying debt instrument like proportion of Gilts, Commercial Papers, Corporate Bonds and others. But in case of DBF, the underlying debt instrument is somewhat defined but the proportion is not fixed. Though investor do not need to worry about the same. The fund manager makes the investments according to the market scenario. For example, if the returns from a short term investment is expected high, the fund manager will invest a major portion of the money in there. And if with changing scenario the expected returns decrease, the amount invested will be taken back for investment in some other area. The conclusion is the fund manager who have the good knowledge of the market makesĀ  the best possible investments for better returns.

Dynamic Bond Funds


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Maturity Period

The bond funds mostly have the fixed maturity period. But here the fund manager have the flexibility to change the maturity period so that the clients gets the better returns. Though not specified, it generally varies between 1-5 years. In the market scenario when the interest rate is high, the maturity period will decrease. This will limit the risk attached. And the result will be better returns within the time frame. On the other hand, if the market is offering lower interest rates, then the maturity period will increase. This will help in improving the investments in various underlying instruments. And a decent returns can be assured in not so good situation.

The best performing Dynamic Bond Funds is Birla Sun Life Dynamic Bond Fund in last few years. Some others with good returns are IDFC Dynamic Bond Fund, SBI Dynamic Bond Fund and Reliance Dynamic Bond Fund.

Dynamic Bond Funds V/S Income Funds

  • The underlying instruments in Income Funds are in a fixed proportion with lesser flexibility of changes as compared to Dynamic Bond Funds.
  • The risk associated is lesser and hence the returns are also less in case of income funds.
  • The maturity period of income fund is fixed.
  • Income Bonds are preferred investment schemes by retired people and Dynamic Bond Funds are preferred by everyone looking for low risk investment schemes with higher returns.

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