Why is the performance of short-term funds for less then fixed deposit in the past 6 months

rvsw

New Member
#1
In the past 6 months, the performance of top rated short-term bond funds has been an average about 2%. Which is an annualised average of about 4%. In contrast, fixed deposits are returning between 6.5 and 7%. Which translates to an after-tax at a marginal rate of 30% performance to be about 5%.

I have not seen short-term bond funds underperform fixed deposit for a period of 6 months or longer in the past 15 years I think.

I do understand that the interest rates are bottoming out and any rise in interest rate is going to decrease the rate of bond mutual funds. However, the short-term bond funds were supposed to absorb the adverse impact of any of the rate hikes in 6 months or so. This is the very definition of short-term bond funds. And even now the interest rates are not rising so it does not look good for short-term bond funds if there underperform in the fixed deposits in a stable interest rate scenario.

For example, you can take a look at access short-term mutual fund http://www.moneycontrol.com/mutual-funds/nav/axis-short-term-fund-retail/MAA022, or HDFC short-term opportunities http://www.moneycontrol.com/mutual-funds/nav/hdfc-short-term-opportunities/MHD677.

Thank you for any insights.
 

Raj232

Well-Known Member
#2
In the past 6 months, the performance of top rated short-term bond funds has been an average about 2%. Which is an annualised average of about 4%. In contrast, fixed deposits are returning between 6.5 and 7%. Which translates to an after-tax at a marginal rate of 30% performance to be about 5%.

I have not seen short-term bond funds underperform fixed deposit for a period of 6 months or longer in the past 15 years I think.

I do understand that the interest rates are bottoming out and any rise in interest rate is going to decrease the rate of bond mutual funds. However, the short-term bond funds were supposed to absorb the adverse impact of any of the rate hikes in 6 months or so. This is the very definition of short-term bond funds. And even now the interest rates are not rising so it does not look good for short-term bond funds if there underperform in the fixed deposits in a stable interest rate scenario.

For example, you can take a look at access short-term mutual fund http://www.moneycontrol.com/mutual-funds/nav/axis-short-term-fund-retail/MAA022, or HDFC short-term opportunities http://www.moneycontrol.com/mutual-funds/nav/hdfc-short-term-opportunities/MHD677.

Thank you for any insights.
What you have mentioned is absolutely correct. What you posted was on Jan 27, 2018 and today is mid-May 2018. Short-Term Bond Funds have done worse than FDs in that past 3 months again. Not sure what could be said further, but did you somehow get the reason for your question ..?
 

travi

Well-Known Member
#3
This is the very definition of short-term bond funds.
You got this part right but it is not a rule written in stone, other forces override this time and again.
Sudden changes can very easily impact this.

FDs on the other hand are pre-defined contracts, hence, when you open an a/c, the rate is committed, its the banks problem to meet it, however, short-term funds by their very nature keep fluctuating rate-wise per day.
 

Raj232

Well-Known Member
#4
You got this part right but it is not a rule written in stone, other forces override this time and again.
Sudden changes can very easily impact this.

FDs on the other hand are pre-defined contracts, hence, when you open an a/c, the rate is committed, its the banks problem to meet it, however, short-term funds by their very nature keep fluctuating rate-wise per day.
The reason always being stated was Bond Funds .. any day give higher returns than Fixed Deposits. :)
FD's was a traditional product and Short term bond funds was the way forward .. but it now seems, it is not the case.
 

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