IDFC Dynamic Bond Fund as Emergency Fund

IDFC Dynamic Bond Fund is suitable for investors with medium to high risk appetite for emergency fund creation. Emergency fund enables the investor to face financial emergencies in a more efficient manner. The most preferred routes for emergency fund build up are bank recurring deposits and debt mutual funds. Bank deposits are more stable compared to debt funds. In terms of return, debt funds are better than bank deposits.

What is a debt mutual fund?

Debt funds are special schemes of mutual funds that invest in fixed income securities like bonds and treasury bills. These investments are less risky compared to equity mutual fund schemes. Net asset values (NAVs) of debt funds are less volatile. However, market and credit risks are associated with these funds too. Market risk in a debt mutual fund scheme arises from interest rate fluctuations in the market. Root cause for credit risk is the failure of issuer of the instrument to meet obligations of interest or principal. To minimise market risk and credit risk, it is important to choose debt funds with lower credit risk, better portfolio diversification, short-to-medium maturity profiles and inherent high liquidity.

There are different types of debt mutual fund schemes. Debt funds are categorised based on the tenure or nature of invested debt instruments. Liquid funds, money market funds and corporate debt fund are major among them. Dynamic bond funds have the freedom to switch between short term and long term debt instruments based on market conditions. Better management of the duration helps to protect NAV in a volatile market.

Why is IDFC Dynamic Bond Fund a good investment option?

IDFC Dynamic bond fund has become the favourite fund in the category through proper allocation of assets. IDFC Dynamic bond fund is the only fund, among the 29 funds in the category, that allocated entire assets to the highest rated debt instruments in AAA category and government bonds, over the last five years. This has minimised the credit risk, though this strategy affected returns slightly. However, conservation of capital assumes highest priority during highly volatile conditions.

How has been the performance of IDFC Dynamic Bond Fund?

As mentioned above, the fund has invested more than 90% in Government of India bonds with the remaining in Central Government loan instruments. The average portfolio maturity of the fund over the past three years is maintained between 3.3-12.7 years. IDFC Dynamic bond fund is managed by Mr. Suyash Chowdhary. He is the fund manager since 15th October 2010. The scheme has provided annualised returns of 8.21% in 5 years and 7.68% in 3 years. The inception date of the fund is 25th June, 2002.

What are the investment options available with IDFC Dynamic Bond Fund?

IDFC Dynamic bond fund is an open ended fund with both growth and dividend options. Minimum purchase amount is Rs. 5000. Additional investment can be for Rs. 1000. The AUM of the fund is around Rs. 2100 Crore. The Fund charges Nil exit loads. According to the fund, the ideal Investment horizon is 3-5 years. Investment can be through SIP mode too and is best suited for the investors with medium to high risk appetite.

Emergency Fund – Recurring Deposits and Debt Mutual Funds

Investors please note that mutual fund investments carry various kinds of risks and shall seek advice of their financial planner before investment.