The Hindu Business Line : Income funds record falling returns Return Tracker

Income funds have not done too well in the past six months. The uncertain periods and recessionary trend witnessed in the economy were a boon to income fund investors in the past year. But with an improvement in overall sentiment and continued appreciation in bond yields, returns of income funds in past six months have fallen. The category average is currently less than a per cent.

The higher returns generated by these schemes in the first half of the year , helped these funds post decent numbers and the category average of one year is still looking pretty good at 10 per cent. Over a three year period, the income funds category averaged annualised return of 7.8 per cent.

Over past six months, 30 of the 84 schemes have seen their NAVs fall, by 0.5-7 per cent. The other 40 schemes have generated absolute returns of one to three per cent. In the category, ICICI Pru Income Opportunities was the best performer, clocking an absolute return of 4.8 per cent. Canara Robeco Income (Bonus) was the worst performer, its NAV correcting by 6.8 per cent for the same period.

Income funds invest a major portion of their assets in corporate bonds and 30-40 per cent of the assets in government securities (g-secs). Anticipating an interest rate hike, market prices of long-term government securities have corrected, leading to falls in NAVs of income funds.

According to Mr Arjun Parthasarathy, Head Fixed Income, IDFC Mutual fund currently corporate bonds are available at a yield of 8.5-9.5 per cent. But if one were to look at the three-year returns of income funds, they are in the 8-9 per cent range. They also offer tax-efficient returns as debt funds are eligible for long-term capital gains tax if held for more than 12 months.

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