Bond investors set to lose a year’s gains

Retail investors who have bought medium- and long-term bond funds would end up losing the entire gains made during the year. With yields on the benchmark 10-year bond surging 52 basis points (bps), or 0.52%, in a single day to move past the 8% mark, gilt funds and medium- to long-term bond funds would end up as the biggest losers. 

Prices of the benchmark 10-year bond slumped 3.5% on Tuesday alone. Bond prices and yields are inversely related. A fall in bond prices adversely affects returns from bond and gilt funds. Incidentally, the yield on the benchmark bond had closed at around 7.1% in the last week of May.

"It is a nasty surprise for investors. This (price fall) would wipe out the gains made by them in the past few months," said Dhruva Raj Chatterji, senior research analyst, Morningstar India, an investment research firm. Gilt funds, which primarily invest in government securities, have given 5-5.1% returns in the past six months. "Gilt funds and long-term bond funds would be the worst hit," experts said.