Gilt funds have delivered 16.40% absolute return over a one year period, outperforming income (13.79%), short term (10.82%), ultra short term (9.14%) and liquid funds (9.01%) due to the recent rate cut by RBI.
On the back of expectation of softening of interest rates, gilt funds delivered the highest returns among debt-oriented categories in the quarter ended December 31, 2014, shows a CRISIL research.
Across debt categories, funds with longer maturity fared better than peers. For instance, the CRISIL–AMFI Gilt Fund Performance Index and CRISIL–AMFI Income Fund Performance Index delivered 16.40% and 13.79%, respectively, compared with CRISIL–AMFI Short Term Debt Fund Performance Index’s 10.82% and CRISIL–AMFI Ultra Short Fund Performance Index’s 9.14%.
“The category, represented by CRISIL–AMFI Gilt Fund Performance Index, delivered absolute return of 7.70% for the quarter compared with CRISIL Gilt Index’s 6.73% (See table). CRISIL Fund Rank 1s from the gilt category have dynamically managed duration, taking advantage of falling yields on the one hand, and increasing cash exposure when interest rates rise on the other. This strategy has limited their downside in the last three years,” stated the report.
Bond prices and yields move in opposite directions. A fall in interest rate benefits long-term debt oriented funds.
Over the last one year, yields on the benchmark 10-year government security have fallen nearly 100 bps from 8.82% to 7.85%. But a chunk of that fall (66 bps) happened in the last 3 months. In the last one year, the average maturity of gilt-category holdings rose from 12.09 years to 16.96 years, with returns of an impressive 16.40%, marginally lower than the benchmark CRISIL Gilt Index’s 16.52%, stated the report.
On the expectations of a rate cut, gilt funds attracted Rs. 2,090 crore net inflows in December and the assets under management in this category crossed Rs. 9,000 crore.
Category returns (%) for quarter ended December 2014
