Should I sell my long-term bond funds?
The one-year return on long-term bonds has fallen to 1-2 percent now from 10-12 percent earlier. Bond yields are up because of inflation fears. Long-tenured bonds are more sensitive to increasing interest rates. When the rate increases, the bond value decreases. But this doesn't mean that you should sell your bond funds right away. Bond funds have been reducing their average maturities by adding short-maturity papers that are less sensitive to rate movements. They reduce volatility and offer capital appreciation too. A better way to manage your bond fund investment is to map your investment tenure with your funds' duration.