Set Sights Lower

Expect less from your bond funds in 2018 as rate cut cycle seems to be all but over.

- Renu Yadav

Debt fund investors are unlikely to end 2017 with the 8 per cent-plus returns they have been used to over the past two-three years ever since the interest rate cut cycle started in 2015. Dynamic bond funds, which delivered 13.41 per cent returns on an average in 2016 and were the best performers, have returned just 4.18 per cent so far (as on November 22), as per the data provided by Value Research. Debt income funds, which invest in higher maturity papers (and are high-risk) have delivered 5.36 per cent this year compared to 11.84 per cent in 2016. Such returns do not justify the kind of risk income funds take. Higher Yield

The reason behind the poor returns is the rise in yields in the second half of 2017. A rise in yields reduces prices of bonds.