A falling interest rate scenario benefit bond funds due to the inverse relationship between bond yields and prices.However, long-term debt funds are considered risky as they are highly sensitive to changes in the interest rate environment and changes in the overall economy. If interest rates do not fall as expected or they harden for a while, these funds will suffer during that period. That is why many investment experts recommend dynamic bond funds to common investors who can't time the entry and exit into long-term debt schemes. "In a dynamic bond fund, the fund manager can play with the maturity period depending on the market scenario. "This helps the fund manager to work pro-actively in accordance with the changes in interest rates," adds Shah.A dynamic bond fund offers freedom to the fund manager to invest across maturities and instruments based on his view on interest rates and economic scenario.

Source: Economic Times November 17, 2016 10:01 UTC