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Bond Funds Bounce Back

Investors must act rationally and not be swayed by temporary gyrations in bond fund NAVs

After tumbling by an average 1.35 per cent, debt fund NAVs climbed up on Tuesday on the back of RBI's buyback in bond markets coupled with stability in the rupee. The debt category gained an average 0.25 per cent, with bond prices rising by approximately Re 1 to Rs 1.25 across the spectrum. However, it will be some time before bond funds can recoup their entire losses, provided there are no further hiccups. Monday's top loser, Pioneer ITI Income Builder Account came back strongly yesterday with a gain of 0.76 per cent. While the fund's NAV moved up by 13 paise to Rs 17.14, it is still significantly off its recent high of Rs 17.44.

On Tuesday, The Reserve Bank pumped in Rs 966 crore for open-market purchase of government bonds. The markets are now expecting a rate cut in the domestic markets after both Federal Reserve and ECB reduced bank rate by 50 basis points. The drop in oil prices to $27.73 per barrel also added to the bullish sentiment with OPEC promising to maintain prices and supply of crude oil. The aggressive dollar sales by nationalised banks also helped the rupee to stabilise. The free fall in the rupee against the greenback had caused a panic selling in bond markets.

Stay Put
With volatility in bond markets, some investors pressed the panic button and either redeemed or moved to cash funds. Thus, they only translated their notional loss into actual loss. However, with stability back on the Bond Street, these investors would be regretting their decision to pull out in panic. Unlike equity markets, bonds are lot less volatile and recover at a faster pace. Thus, investors must act rationally; stay invested and not swayed by temporary gyrations in bond fund NAVs. On the other hand, fresh investments can be routed through systematic investment plans to ride out any intermittent volatility.

On Road to Recovery?
  Scheme Name  17/09/01*  18/09/01*  % Chg
  Pioneer ITI Income Builder 17.01 17.14 0.76
  IDBI PRINCIPAL Deposit Bond 11.86 11.92 0.51
  PNB Debt 13.90 13.97 0.50
  Alliance Income Fund 17.01 17.09 0.47
  Templeton India Income 17.62 17.70 0.45
  K Bond Wholesale 12.61 12.66 0.44
  Pru ICICI Income Plan 14.64 14.70 0.41
  ING Income Portfolio 12.87 12.92 0.39
  IL&FS Bond 12.74 12.79 0.38
  Sun F&C Money Value Bond 13.83 13.88 0.36
*NAV in Rs