Indian bond prices closed in negative territory in May as concerns on the rising government bond supply unnverved investor sentiment. Additionally, worries about the recovery in the global economy further weighed.
However, the softening in the headline inflation, which declined to 0.48% on May 23, from 0.7% on April 25, helped bond prices.
The yield on 10-year benchmark paper, 6.05%, 2019 government bond, increased to 6.69% on May 29, from 6.22% at the end of April. During the month, mutual funds invested Rs 103.7 billion in debt securities on inflows in income and liquid funds.
The income funds received Rs 281 billion in net inflows, while the liquid funds received Rs 8.6 billion.
In contrast, gilt funds experienced approx Rs 8 billion in net outflows. Balanced funds, which invest partly in equities and partly in bonds, registered Rs 430 million in net outflows in May.
India Liquid
The liquid funds invest primarily in money market and debt instruments with residual maturity, which does not exceed 91 days. The Morningstar India Liquid category registered 0.4% return in May.
Within this category, Sahara Liquid Variable Pricing delivered the highest return of 0.61%, while Birla Sun Life Sweep Plan registered the least return of 0.01%.
India Ultra Short Bond
The ultra short bond portfolios invest in investment grade debt securities that have residual maturities of less than one year but greater than 91 days. In May, this category posted 0.4% return with Escorts Liquid generating the highest return of 0.8%. Reliance NRI Income was the worst performing fund with 0.1% negative return.
India Short-Term Bond
The short-term bond category funds invest in corporate and government securities with residual maturities between one- to three-years. These funds are fairly conservative and carry lesser interest rate risks, compared with longer duration bond funds. Within this category, Templeton India Short Term Income posted the highest return of 0.7%. In comparison, the short-term bond category posted 0.1% negative return. Out of 32 funds considered, 23 funds outperformed the category average during the month.
India Intermediate Bond
The intermediate bond funds invest in corporate and other investment grade debt securities and have average effective maturities between three- to seven years. Due to their higher durations, these funds are relatively more sensitive to interest rate risks, as compared to short term bond funds.
Due to their higher durations, these funds' performance was impacted by the lingering concerns on the government borrowing program. This category registered 0.9% negative return in May. Out of 36 funds considered, only six funds managed to deliver positive returns during the month. ICICI Prudential Income Opportunities Fund Retail Plan generated the highest return of 1.6%, while JPMorgan India Active Bond Retail was the worst performing with 2.2% negative return.
India Long-term Bond
The long-term bond funds invest primarily in corporate and other investment-grade debt instruments with residual maturities greater than seven years. Due to their long durations, these portfolios are more exposed to greater interest rate risk. Within the long-term bond category, Fortis Flexi Debt posted the highest return of 0.8%, compared with its category average of -0.5%. Out of 13 funds considered, five funds managed to post positive returns during the month.
India Short Government
The funds investing in short maturity government bonds delivered -0.2% return in May. Sundaram BNP Paribas Gilt was the best performer in this category with 0.6% return. Out of 18 funds available for sale, only six funds posted positive returns. Reliance Gilt Retail was the worst performing fund in this category. The fund posted of -1.9% negative return.
India Intermediate Government
The intermediate government bond category generated -1.4% return last month. The best performer in this category was ICICI Prudential Gilt Investment Plan, which registered 0.2% return. Only four funds managed to post positive returns, out of 25 funds available for sale in this category. DWS Gilt was the worst performing fund with -2.5% return.
India Long Government
The long government funds have average maturity more than seven years. IDFC Government Securities Plan B delivered the highest one-month return in this category. The fund posted 0.3% return, as compared to category average of -1.1%.
Out of 22 funds available in this category, only five funds delivered positive returns last month. SBI Magnum Long Term PF Plan was the worst performing fund with -2.4% return.
