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11 debt mutual fund schemes lost over 1 per cent in a single day

The 10-year benchmark government bond yield spiked to around its three-month high to 6.79%, last week, from 6.64%.

, ET Online|
Updated: Sep 25, 2019, 11.59 AM IST
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The stock market greeted the finance minister Nirmala Sitharaman’s announcement on corporate tax cuts with a rally of 1,900 points on Friday. Most equity mutual funds crawled out of the negative zones on dramatically improved sentiment on the street. Did you check what happened in the debt or money market and to your debt mutual fund schemes?

Here is the scoop: the money market greeted the government’s largesse with trepidation. The government has announced a series of measures, including the corporate tax cut, to boost the fortune of the sagging economy, and forego a large amount of revenue. Money market participants were anxious to know how the government will bridge the gap – whether it will borrow heavily and drive up the yields.

Reflecting the anxiety, the 10-year benchmark government bond yield spiked to around its three-month high to 6.79 per cent on Friday, from 6.64 per cent on Thursday. Even debt mutual funds suffered losses. NAVs of 11 debt mutual fund schemes fell by more than one percentage on September 20.

Long duration funds and gilt funds lost the most on Friday. Some dynamic bond schemes with a long average maturity also lost out. Reliance Nivesh Lakshya Fund, a long duration fund, witnessed the highest fall of -1.78 per cent in its NAV on Friday. (See table for the complete list of schemes which witnessed the highest fall in their NAV on a single day).

Schemes % Change in NAV (19th September to 20th September)
Reliance Nivesh Lakshya Fund -1.79
Kotak Gilt-Invest -1.30
Invesco India Gilt Fund -1.11
ICICI Pru Long Term Bond Fund -1.11
IDFC G-Sec-Invest -1.10
PGIM India Gilt Fund -1.09
Tata Gilt Securities Fund -1.07
PGIM India Dynamic Bond Fund -1.07
Quantum Dynamic Bond Fund -1.04
IDFC Bond Fund - Income Plan -1.04
L&T Gilt Fund -1.03
Source: Ace MF

“The government will get lower revenue due to the tax rate cut. This will lead to rise in the fiscal deficit and the government borrowing will go up.This lead to a spike in the bond yields on Friday which in turn moved the bond prices down,” says Joydeep Sen, founder,

Bond yields and bond prices move in the opposite direction. When bond yields go up, the prices of bonds fall, and it drags down the NAVs of debt mutual fund schemes.

What should debt mutual fund investors do?

Mutual fund advisors say the basic advice remains the same. “Investors should continue to stick to short duration funds and dynamic bond funds,” says Chokkalingam Palaniappan, Founder, Prakala Wealth Management. “Higher the average maturity of a scheme, the higher is the risk of interest rate volatility.”

Existing investors in the long duration schemes should not take any action in haste, say mutual fund advisors. Advisors ask them to wait till the yields normalize. “The spike in bond yields happened after the announcement. If the existing investors at all want to exit, they can wait for the bond yields to come back to 6.5 levels and then they can plan their exit,” says Sen.

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