Not only has the size of bond funds swelled, the yields too have been staggering. Birla Income Plus, Prudential ICICI Income, Templeton India Income, Alliance Liquid Income and KP Income Builder, which account for almost 50 per cent of the total bond funds, have yielded annualised returns of over 18 per cent over the past one month. Templeton India Income has been the top performing fund during the last month with an annualised return of 24.12 per cent.

"The bond funds have yielded high returns as a result of ample liquidity and strong rupee against the US currency. Most bond funds have increased the maturity profile of their portfolios and exposure to gilts to take advantage of the spurt in prices," Dhirender Kumar of Value Research told The Financial Express.

Over the past one month, bond fund corpus has swelled by around 11 per cent to Rs 13,372 crore on December 31, 2000, up from from Rs 12,038 crore as on November 31, 2000.

Among some of the large bond funds, Alliance Liquid Income has seen its assets under management rise to Rs 988 crore as on December 31, 2000, up from Rs 788 crore on November 30, 2000. Prudential-ICICI Income crossed the Rs 2,000-crore level with its corpus rising to Rs 2,084 crore from Rs 1,810 crore. The surge in corpus is result of fresh inflows rather than rise in NAVs.

Despite a consistent fall in markets and sharp fall in NAVs of most of the equity-dedicated funds, there has been no shift from equity funds to debt funds. The size of bond funds has swelled as a result of transfer of funds from cash funds. Stability in rupee and interest rates has forced investors to flock back to bond funds.

In mid-2000, a sharp slide in equity markets and volatile interest rates resulted in a huge surge in investments in cash funds. Further, prior to the 100 basis point rise in interest rate in July by RBI, debt funds had started yielding negative returns.