Why is it that the growth in net asset value (NAV) of income funds is not the same as the prevailing interest rates? Also, explain the reason behind the huge differences in the returns of the top and the bottom performers.
- Haridas T
The returns for the debt funds not only accrue from the interest income, but also from the price movements of the fixed income instruments. While the liquid funds derive most of their returns from the interest income, the short- and medium-term debt funds primarily generate returns from trading of fixed income instruments based on their assessment of interest rate scenario. This also causes the return differential between different income funds.
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