Every debt fund is supposed to invest as per its mandate: so, short-term bond funds invest in shorter-tenured securities and long-term bond funds invest in longer-tenured ones. But if interest rates are rising, dynamic bond funds typically reduce their duration to cushion the impact of falling bond prices. The question is: should you just invest in short-term debt funds and avoid dynamic funds altogether? Over the 3-year time periods, dynamic funds outperformed short-term bond funds around 60-70% of the times. As on February 2018-end, all the dynamic funds in our sample list underperformed their short-term funds over the past 3-year periods.

Source: Mint April 11, 2018 13:18 UTC