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Debt Fund Volatility

Extreme unpredictability is expected from these funds in the future

I want to start an SIP in a good debt fund that has given more than 10 per cent returns in the past one year. Please suggest a suitable one.
- Ayan Dutta

For the year ending August 13, 2009, 29 of the 48 medium-term debt funds have given returns of more than 10 per cent. There is an inverse relationship between interest rates and bond prices. Debt funds gain when interest rates are falling and vice versa. The high returns of debt funds in the past one year are mainly because of the continuously falling interest rates towards the end of 2008.

There are lesser chances now that the interest rates will see a similar fall in the coming future. Moreover, with the government borrowing to finance its expenditures, the bond prices are more likely to see a fall. Debt funds are going to be volatile in the coming times and one should not expect them to deliver such returns.

Some top rated funds that have delivered returns of more than 10 per cent in past one year are Canara Robeco Income, ICICI Prudential Income, Fortis Flexi Debt Regular, IDFC Dynamic Bond Plan A, Sahara Income and Birla Sun Life Dynamic Bond Retail.


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