Dont get mesmerized by outperformance of income funds

In the last one-month debt-income funds have seen exceptional returns which has tempted the investors to opt for them. In the last one month some of the income funds have offered more than 50 per cent of annualised returns.

The sharp fall in the yields of government securities in the last one month has led the higher returns of these schemes. The changes in the borrowing plan by government and RBI’s inflation forecast are the key reasons behind the fall in the G-sec yields.

The 10-year benchmark yield has fallen to 7.2 per cent in the beginning of April 2018 as against 7.7 per cent in March 2018. The inverse relation between the bond prices and the interest rates has aided the returns from the Debt-Income Funds. Therefore, the schemes which were bleeding till January 2018 have turned green in the last one month. The category has given almost ~22 per cent annualised returns in the past one month.

According to our data analysis, below mentioned schemes are the top performers among the category in the last one month.

Even if the returns seem to be attractive, investors should not get mesmerized by this. The higher returns are a result of the movement in the interest rates in the last one month. Investors who have invested recently may be witnessing good annualised returns, but these returns are expected to average out in coming days as the interest rates are poised to grow in the longer run. So instead of chasing higher returns, investors should stick to their investment objectives and follow the investment strategy which will be fruitful in the longer run.