Debt mutual fund investors cheer as their schemes’ NAVs rose by upto 2% in a single day on September 1. Debt mutual funds saw a spike in their one day NAV as the yield on the government 10-year bonds fell over 17 basis points on Tuesday. The bond yields fell the most in three months, after the Reserve Bank of India (RBI) announced measures to allay the market fears over rising yields and higher borrowing programmes. Dynamic bond funds, gilt funds and long term bond funds benefited the most due to the fall in the bond yields.
On September 1, the 10-year bond yield was trading at 5.944%, its steepest decline since 13 May, from its previous close of 6.117%. Bond yield and prices move in opposite directions.
Nippon India Nivesh Lakshya Fund saw the highest increase of 1.85% in its single day NAV as on Tuesday, followed by SBI Dynamic Bond Fund and SBI Magnum Gilt Fund.
Bond yields and prices have an indirect relationship. As yields move up, prices of existing debt funds go down, as the new securities become more favorable due to higher interest rates. That means, the NAV of the debt mutual fund scheme falls when the yields of securities go up.
Here is the list of 10 debt mutual fund schemes which saw the maximum gain in their single day NAVs an on September 1.
Nippon India Nivesh Lakshya Fund, 1.85%
SBI Dynamic Bond Fund, 1.73%
SBI Magnum Gilt Fund, 1.64%
Kotak Gilt Investment, 1.59%
Kotak Gilt Investment Provident Fund and Trust Plan, 1.59%
UTI Gilt Fund, 1.58%
ICICI Prudential Gilt Fund, 1.56%
Tata Gilt Securities Fund, 1.54%
Nippon India Dynamic Bond Fund, 1.51%
DSP Government Securities Fund, 1.47%
Source: Value Research
Among its measures, RBI increased the held to maturity limit from 19.5% to 22%. It also announced additional open market operations (OMO) worth ₹20,000 crore and term repo operations worth ₹1 trillion to infuse liquidity into the market.
In order to reduce the cost of funds for banks, RBI also allowed them to swap the funds raised under long term repo operations (LTRO) at 5.15% with new funds made available under the 1 trillion repo window at 4%.