Gilt Funds: Should you invest in them now?
In the last one year, there are very few categories of funds that have generated returns in double digits. One of them being Gilt funds. Both Gilt, as well as Gilt with 10-year constant duration, has generated returns in the excess of 10 per cent during the last one year.
|
Name
|
YTD
|
1 Month
|
3 Months
|
1 Year
|
3 Years
|
5 Years
|
10 Years
|
|
Debt: Gilt with 10-year Constant Duration
|
9.64
|
0.97
|
3.04
|
11.03
|
9.62
|
10.71
|
9.87
|
|
Debt: Gilt
|
9.04
|
0.85
|
2.7
|
10.16
|
7.82
|
9.17
|
8.93
|
Should you invest in them now?
There are two kinds of gilt funds. First is Gilt with ten-year constant duration or say, they have a maturity of ten years. These funds invest at least 80 per cent of their corpus in government securities with a maturity of 10 years. Second, are Gilt funds that can invest in government securities across maturities.
These funds tend to perform better during the downward movement of the interest rate. They have an inverse relationship with the interest rate. Since the beginning of the year, Reserve Bank of India (RBI) has slashed the key policy rates by 1.15 per cent. This is the reason why gilt dedicated funds have given healthy returns recently. In case the interest rate goes up, these funds might lose money.
Going ahead, we believe that there is a limited scope of RBI to cut the interest rates further. Even today in their by-monthly meeting, RBI kept the key rates unchanged. Hence, the best is behind us now in terms of returns from these funds and you should remain away from these categories now.