Dynamic Bond Funds: Apt in a volatile interest rate regime

The Reserve Bank of India (RBI) in its policy statements has made it very clear that the interest rates have peaked and there is a chance of policy reversal. However, the policy shift would happen only if inflation shows signs of moderation. On the other hand, policy experts are of the view that if the fiscal deficit numbers turn out to be cumbersome and oil prices continues to be a nightmare, this will in turn fuel inflationary expectations in the coming months. Hence, the Central Bank will find itself in a spot. This is because they will have to continue with their hawkish stance to counter inflation. In this scenario, where there is a lot of uncertainty surrounding interest rates, investors are wondering if they should continue parking their money  in short-term funds or start taking an exposure to  long-term instruments. This is the ideal situation, wherein, the concept of dynamic bond funds comes to the aid of retail investors.

Dynamic bond funds, as the name suggests, has the flexibility to move into short-term/long-term instruments depending upon the fund manager