In the past 6 months, the performance of top rated short-term bond funds has been an average about 2%. Which is an annualised average of about 4%. In contrast, fixed deposits are returning between 6.5 and 7%. Which translates to an after-tax at a marginal rate of 30% performance to be about 5%.
I have not seen short-term bond funds underperform fixed deposit for a period of 6 months or longer in the past 15 years I think.
I do understand that the interest rates are bottoming out and any rise in interest rate is going to decrease the rate of bond mutual funds. However, the short-term bond funds were supposed to absorb the adverse impact of any of the rate hikes in 6 months or so. This is the very definition of short-term bond funds. And even now the interest rates are not rising so it does not look good for short-term bond funds if there underperform in the fixed deposits in a stable interest rate scenario.
For example, you can take a look at access short-term mutual fund http://www.moneycontrol.com/mutual-funds/nav/axis-short-term-fund-retail/MAA022, or HDFC short-term opportunities http://www.moneycontrol.com/mutual-funds/nav/hdfc-short-term-opportunities/MHD677.
Thank you for any insights.
I have not seen short-term bond funds underperform fixed deposit for a period of 6 months or longer in the past 15 years I think.
I do understand that the interest rates are bottoming out and any rise in interest rate is going to decrease the rate of bond mutual funds. However, the short-term bond funds were supposed to absorb the adverse impact of any of the rate hikes in 6 months or so. This is the very definition of short-term bond funds. And even now the interest rates are not rising so it does not look good for short-term bond funds if there underperform in the fixed deposits in a stable interest rate scenario.
For example, you can take a look at access short-term mutual fund http://www.moneycontrol.com/mutual-funds/nav/axis-short-term-fund-retail/MAA022, or HDFC short-term opportunities http://www.moneycontrol.com/mutual-funds/nav/hdfc-short-term-opportunities/MHD677.
Thank you for any insights.