Gilt funds have been doing well for the last few months on the back of falling yields (and rising prices) in the government securities market.
Gilt funds have been doing well for the last few months on the back of falling yields (and rising prices) in the government securities market. The yield on 10-year benchmark has slumped from a recent high of 8.48% in June to 7.94%. Many gilt funds have generated higher returns than the best performing debt funds.
Reliance G Sec Fund is one of the best performing gilt funds. Its primary investment objective is “to generate optimal credit risk free returns by investing in a portfolio of securities issued and guaranteed by the central and state government”.
The target asset allocation is 70-100% in long-term government securities and the rest in money market instruments. However, in the last two years, this strategy has not been followed to the fullest.
The fund has been investing a higher portion of its corpus in money market instruments — on an average the fund had an exposure of around 50% to these instruments for the last two years.
This ploy has not worked well. While the benchmark index (I-Sec Li-Bex Index) generated returns of around 10.45% for one year, Reliance G-Sec yielded only 8.18%. However, the scheme has done better than the category average (5.86% returns).
On the average maturity front, the fund has scored better. For the last two years, the fund has managed an average maturity of around 2078 days, which is lower than the benchmark average and is more in line with I-Sec Mi-Bex index which is composed of government securities with 3-7 years maturity.
It is thus not surprising that
the scheme’s performance has more similarities with the I-Sec Mi-Bex index.
The fund’s performance has been good for last few years - in fact, it been the best performing gilt funds in terms of three-year returns.
Though gilt funds don’t carry any default risk they are still prone to market risk and the fund has scored well on that parameter. It has seen a volatility of around 2% for the 8.18% returns generated in the last year, which is a good risk to return ratio.
With high domestic liquidity and increasing inflationary expectations, the RBI is likely to continue with its hawkish stance.
For an investor looking out for low-risk funds, gilt yields are decent enough and investment in Reliance G-Sec Fund can be considered for long term benefits.
By arrangement with mutualfundsindia.com, a unit of Icra Online
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