If you want to benefit from a likely drop in interest rates, you can take a closer look at government bonds. mutual fundsHowever, be careful: government bond funds are risky and extremely sensitive to changes or potential changes in the interest rate scenario. Therefore, these schemes are recommended only to informed investors who are willing to take risks and have a long-term investment horizon.
Read also | Best Corporate Bond Mutual Funds to Invest in August 2024
Government bond funds are not recommended for regular investors because they are risky and volatile. Government bond funds suffer the most when interest rates rise. Bond prices and yields move in opposite directions. When interest rates rise, bond prices fall. This drags down the net asset values of the schemes.
Government debt funds are debt mutual funds that invest in government securities or G-secs. As per Sebi norms, these schemes are required to invest 80% of their capital in government securities. As you can see, these schemes either invest in government securities or lend money to the government. Therefore, they do not have any credit risk or face any default. However, they are extremely sensitive to changes in interest rates.
These factors make investing in government bond funds extremely complicated. It is necessary to be well informed about changes in interest rates in the economy. For example, interest rates are supposed to rise within a few months and interest rate cycles typically last a few years. As mentioned before, this will have a negative impact on government bond funds.Read also | Pharmaceutical and healthcare mutual funds dominate last week’s performance chart, delivering returns of over 10%Does that mean you should not invest in these schemes? Not really. But you should invest only if you have time to wait for the interest rate cycle to turn. This will help investors benefit from low interest rates. These schemes have the potential to offer double-digit returns when rates start falling or in anticipation of interest rate falls.
Below are our recommended loan schemes. Nippon India Gilt Equity Fund has been in the fourth quartile for the last one month. The scheme had been in the third quartile earlier. Aditya Birla Sun Life Government Securities Fund has been in the third quartile for the last four months. Bandhan Government Securities Fund has been in the second quartile for the last five months. Follow our monthly updates to track your investments.
The best public debt funds to invest in August 2024:
- Nippon India Gilt Equity Fund
- Bandhan G-Sec Fund
- SBI Magnum Government Bond Fund
- ICICI Prudential Gilt Fund
- Aditya Birla Sun Life Government Securities Fund
Methodology:
ETMutualFunds.com has used the following parameters to select the debt mutual fund schemes.
1. Moving average returns: Filmed daily for the past three years.
2. Consistency over the last three years: The Hurst exponent, H, is used to calculate the consistency of a fund. The exponent H is a measure of the randomness of a fund’s NAV series. Funds with a high H tend to exhibit low volatility compared to funds with a low H.
i) When H = 0.5, the return series is said to be a geometric Brownian time series. This type of time series is difficult to forecast.
ii)When H < 0.5, the series is said to have mean reversion.
iii) When H > 0.5, the series is said to be persistent. The higher the value of H, the stronger the trend of the series.
3. Downside risk: For this measure we have only considered the negative returns contributed by the mutual fund.
X = Returns below zero
Y = Sum of all squares of X
Z = Y/number of days needed to calculate the relationship
Downside risk = square root of Z
4. Superior performance: Fund performance: benchmark performance. Daily cumulative returns are used to calculate the fund and benchmark performance and subsequently the fund’s active performance.
Asset size: For debt funds, the limit asset size is Rs 50 crore.
(Disclaimer: Past performance is no guarantee of future performance.)
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