Debt funds--Bonds a respite to investors!!

The bond investors have never seen such good times like the last year. But no one knows how long the good times will last. Income funds—those that invest in long-term securities i.e., bonds—have offered solace in times when people are asking for no more than preservation of the capital invested . Most of these funds have delivered more than 20% returns last year. The corpuses of bond funds of the major fund houses have gone up by at least ten times in last few months. There is a feeling that soft interest rates would be here for a while and this is one thing that bonds love.

Inflation is off its peak, thanks to a fall in prices of crude oil and commodities. Interest rates may fall further.GDP growth that was around 9% last year has fallen to 7.6% in second quarter of the current financial year. Add to this the lull that has engulfed the equity markets which is showing no signs of receding. A money manager has to invest somewhere, right? So, after the fall in stock prices, bonds are his next best bet.

When yields fall, bond prices rise. Most fund mangers feel that with interest rates in America nearing zero, global investors would make a beeline for higher yielding securities like Indian bonds. This could lead to a fall in yields, enabling bond funds to post good returns. But it is only a matter of time, before the focus comes back on equities.