Investors in bond funds could see better days ahead. With the US Federal Reserve postponing its tapering programme, the Reserve Bank of India (RBI) is widely expected to roll back its liquidity tightening measures in the coming weeks. This is expected to boost bond fund returns.

In the past month, bond funds have been giving attractive returns to investors, with yields hovering above the doubledigit mark, especially in corporate bonds and shortterm paper. As a result, onemonth returns of debt income funds stood at 2.37 per cent and short- term bond funds 1.56 per cent, while liquid funds returned 0.89 per cent, according to data by Value Research. Annualised returns are higher.

The bond fund market widely expects the short- term liquidity tightening measures could be cut to ease the pressure on banks. Bond funds invest in overnight call money markets and some have invested 20 per cent of their portfolios in cash and cash equivalents.

Bond funds tend to gain on net asset values when interest rates fall and vice versa.

When bond yields started rising in July, investors in bond funds lost in liquid funds. Bond fund managers are expecting a more stable market in the coming days against the turmoil in the past. The sentiments have improved for now in the bond market. Bond funds have been making gains in the past one month and the pressures on the bond market have reduced significantly. The 10- year benchmark yield that surged to 9.4 per cent in August is hovering around 8.2 per cent.