BANGALORE: As the investing universe begins, it seems that everything has changed. Suddenly, bonds are becoming one of the hot investments, and experts are advising to buy it, reports Business Standard. Fears of a bond collapse was supposed to occur, instead the instant interest rates which started to rise have dissipated, and investors who were being told to give up their bond funds, are now being told to circle back for more.

In the slow-moving world of bonds and bond funds, it may be the fastest reversal in thinking ever. For fund investors who ended 2013 wondering if diversification still worked as domestic stocks always ruled the world, it is a good reminder that no matter how hot or cold the market gets, spreading money around into different asset classes makes more sense than chasing what’s hot.

Investors who are willing to invest for the long term--for them experts are recommending bond and income funds. “Investors might record double-digit returns from bond funds in the next year. The yield on the old 10-year bond is 8.86 per cent; the annualised returns are 9.05 per cent. A little decline in yields will generate good returns,” said Dhawal Dalal, executive vice-president and head of fixed income at DSP BlackRock Mutual Fund. 

Bond yields and prices are inversely proportional. According to Dalal, if investors invest in bonds for 12-18 months, they are likely to record good returns. According to data from Value Research, the returns of top performing pure gilt funds and income funds in the past year stood at 6-10 per cent, though not all funds have given such returns. There was variability in performance is starting: the best-performing medium-and long-term gilt fund has returned 11.58 per cent, while the worst-performing has returned a dismal 1.14 per cent.