What are dynamic bonds in debt mutual funds?

Debt funds are a type of mutual funds that invest primarily in fixed income instruments. The performance of the debt fund is inversely proportional to the market interest rates. If the interest rates rise, returns of debt funds drop. However, when the interest rates fall, debt funds gain value. But there is a class of debt funds that gains in both situations – rising and falling interest rates. Such funds are known as dynamic mutual funds.

Here is everything you should know about dynamic bonds:

What are dynamic bonds in debt mutual funds?

Dynamic bonds in debt mutual funds alter their portfolio allocations dynamically between short-term and long-term bonds. This strategy enables these mutual funds to benefit from the fluctuating interest rates in the market. 

These mutual funds are dynamic in composition and maturity profile. They are not restricted by investment duration or maturity of the securities they invest in, …