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Not long ago in the years 2019 and 2020, a few categories of debt funds generated returns in double digits. For example, ICICI Prudential Long Term Bond Fund from the long duration category generated return of 11.58 per cent after generating return of 12.75 per cent return in 2019. There are other categories also such as gilt with 10-year constant duration that saw a double-digit return in the same period. For example, funds such as, Bandhan Government Securities Fund – Constant Maturity Plan – Direct Plan from this category saw a return in double-digits for 2019 and 2020.
One of the reasons for such returns was the sharp fall in yield in these two years. For example, in 2019 the benchmark 10-year Government of India bond yields dropped by 11 per cent. The 10-year GOI bond yields were trading at 7.385 per cent at the start of 2019, which dropped to 6.532 per cent by the end of 2019. Similarly, in 2020, the 10-year GOI bond yields dropped by 10 per cent and were at 5.887 per cent at the end of 2020.
There is an inverse relation between bond yields and bond prices and hence the performance of bond funds.
This story is from the October 23, 2023 edition of Dalal Street Investment Journal.
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This story is from the October 23, 2023 edition of Dalal Street Investment Journal.
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