This article explains five reasons to get better returns by investing in SBI Dynamic Bond Fund.
SBI Dynamic Bond Fund is a debt scheme and invests in debt securities for a short-term and long-term duration depending on the fund managers strategy. It was launched on 9th Feb 2004. Mr Dinesh Ahuja has been handling the portfolio of the scheme since Jan 2011. Being a dynamic fund, it has many advantages over debt funds. Here are the reasons to invest in the scheme and get higher returns.
Flexible Portfolio Construction
SBI Dynamic Bond Fund G is an aggressive income fund where the fund manager handles the portfolio dynamically. You can expect the dynamic portfolio with a freedom to choose the term bonds. Unlike, short-term and long-term bond funds, it invests in shorter and longer securities accordingly with no restrictions. Depending on the interest rates, they can be a short-term bond fund or long-term bond fund in a month or another.
As bond price and interest rates have opposite traits, a higher portfolio duration is favourable when the interest rates are going down. Apart from this, the fund has a shorter duration, when the interest rates are going up to accommodate the reduced bond prices. Shorter duration favours the lower volatility in the portfolio as well.
Hold at Least for 3-Years
As suggested by the experts, the performance of SBI Dynamic Bond Fund should be evaluated over a time horizon of 3 to 5-years. In the last 1-year, it has produced 4.77% annualised returns, lower than benchmark and category average. Moving further, in the last 3-years, it has generated 8.08% annualised returns above category’s average and benchmark by 1-2 percentage point. Considering the last 5-years performance, it has produced 8.53% annualised returns. The scheme has favourable performance in last 7 and 10-years as well suggesting the expected outcome in the duration of at least 3-years. Comparing the performance of SBI Dynamic Bond Fund Growth over the years, in a period of 3-years and more, it has outperformed the other short-term bond funds.
Lower Risk and Stable Returns
SBI Dynamic Bond Fund maintains lower risk in the portfolio and produces stable returns. Some dynamic bond funds provide higher returns as well, but there is comparatively high risk-appetite as well. The scheme follows the mandates of investment objective and helps the investors who are not able to predict the variation in interest rates. This is an ideal way to maintain lower risk in the portfolio with stable returns expectations.
Active Management
The investment objective of this scheme is to invest in high-quality debt instruments which have varying maturities to generate attractive returns by dynamically managing the security allocation in the portfolio. It maintains the liquidity in the portfolio with the active management system. The different securities available in the portfolio are of varying periods to get the advantage of interest rate fluctuations. According to SEBI’s definition, Dynamic Bond Funds are free to select the duration and take investment decision independently.
Major Cash Allocation
The scheme has a significant allocation in cash equivalent which is around 36.38% (as on 30th Nov 2018). The fund manager is free to switch to fully cash allocation situation and other different allocation stages based on interest rate analysis. So, the investors feel comfortable in varying interest rate conditions as well because the portfolio allocation depends on the current market interest rates of that time.
Analysing various parameters such as risk, return, portfolio construction, investment strategy, past performance, SBI Dynamic Bond Fund is suggested to the investors who want to invest in debt instruments to get better returns in a time horizon of 3-years and more.
Dishika is a financial analyst at MySIponline with more than 5-years of experience.