Best Gilt Funds to invest in 2018-2019
Gilts funds are mutual funds which invest in different types of government securities issued by the central and state governments (medium and long-term). The credit rating of these funds is top-notch as they invest only in government bonds. These funds are susceptible to interest rate risk as the modified duration of these funds is on the higher side. However, there are gilt funds available with low modified duration which are less risky and have performed well. We have included such funds in our recommendations in this blog. Investors who want to take advantage of interest rate movements can invest in long-term gilt funds.
Returns from these funds typically comprise of interest accrued or yield on instruments held and/or any capital appreciation/loss. Returns are primarily dependent on the change in interest rates as there is an inverse relationship between bond prices and interest rates.
One of the several advantages of gilt fund is that there is no credit risk attached to the fund and capital protection is more or less guaranteed. It also provides easy access to government securities which is otherwise not available to retail investors.
Should you invest?
We, at Wealthtrust, believe that gilt funds are ideal for those who want more safety for their investments with reasonable returns on investments. We believe a person should ideally consider his/her own risk taking capacity, financial goals prior to investing in Gilt funds. However, as discussed earlier, most of these funds invest in medium to long term government bonds; the returns from these are volatile. Hence before investing in them it is important to know that the returns from these funds fluctuate and hence they can be risky in short term.
We recommend the following gilt funds:
The scheme seeks to provide the investors with returns generated through investments in government securities issued by the Central Government and/or State Government. The fund comprises of investments in government-backed securities (sovereign rating) that comprises of around 1/3rd of portfolio allocation. The remainder comprises of CBLO or the collateralized borrowing and lending obligation that is a money market instrument that represents an obligation between a borrower and a lender as to the terms and conditions of the loan. CBLO comprises of around 60% of the portfolio and the remainder is cash and cash equivalents. The fund has managed to generate considerable returns within its category over multi-trailing periods as depicted in the table above. The total asset under management as of October 31, 2017 is Rs 589 crore.
The fund has low standard deviation amongst its peers at 1.75 against category average of 1.99. This indicates that the fund has low volatility and thereby low risk. The fund’s Sortino ratio is 7.73 against category average of 5.39 thereby indicating that the fund has lower probability of downside deviation. The fund’s beta is moderate at 0.28 against 0.31 category average thereby indicating that both the peers and the fund are not very volatile in relation to market movement. Though the fund might not give abnormally high returns during bull market but over the long term the returns from the portfolio is average with low risk.
Lastly, the fund manager Dinesh Ahuja has been managing the fund since Jan 2011 and he has considerable experience of around 2 decades that provides sustainability of the fund and its style.
The scheme seeks to generate reasonable return by investing in government securities with short to medium term maturity, and treasury bills. The fund has returned reasonable return over multi-trailing time period and has out performed its category returns over these periods. The fund is ranked in Top-10 funds over these years. The fund invests primarily in government-backed securities with sovereign rating which accounts for 45% of portfolio followed by CBLO and cash equivalents which account for remaining (as of October 31, 2017). Average maturity for the instruments is around 2-3 years. As of October 31, 2017 the top instrument is Haryana State Development loan that comprises of 15% of the portfolio. The total asset under management as of October 31, 2017 is Rs 102 crore.
The fund has low standard deviation amongst its peer at 1.63 against category average of 1.99. This indicates that the fund has low volatility and low risk compared to its peers. While the fund’s mean return is higher than the category mean its Sortino ratio at 4.43 is lower than the category average of 5.39. This indicates that fund has higher probability of downside deviation than its category. The fund’s beta is moderate indicating that while the fund might not give abnormally high returns when compared to market and/or other asset class but it could generate moderate returns sustainably.
Lastly, the fund manager Harshal Joshi has been managing the fund since May 2017 and has around 6 years of experience in mutual fund industry. Prior to this he was associated with Fixed Income Investment team from nearly a decade.
The scheme seeks to generate credit risk-free return through investments in sovereign securities issued by the Central and/or State Government. The fund has returned reasonable return over multi-trailing time period as seen in the table above. Over one-year period the fund was ranked two within its category and has around Rs 751 crore of asset under management as of October 31, 2017. The fund invests primarily in government-backed securities with sovereign rating that accounts for 70% of portfolio followed by Central Government Loan and Net Current Assets at 16% and 13% respectively. The remainder is invested in State Development Loan. As of October 31, 2017, around 88% of the securities had sovereign/government rating with average maturity of 8.75 years. As of October 31, 2017 the top instrument is GOI securities with coupon of 7.61% with maturity in 09-May-2030 and it accounts for nearly 24%.
The fund has high standard deviation at 5.22 against category average of 5.07. This indicates that the fund has high volatility both in general and when compared to peers. Generally, the fund in the category has higher deviation as compared to other funds such as short duration funds. The fund’s mean return is higher than the category mean at 10.82% against average of 9.85% and also has better Sortino ratio at 2.73 is higher than category average of 1.84 thereby indicating that the fund has better downside capture. The fund manager seeks to maintain a balanced portfolio with beta of 0.93 against category average of 0.94 thereby indicating that the fund’s performance is generally balanced and is not directly determined to the market performance.
Lastly, the fund manager Amandeep Singh Chopra has been managing funds since 2006 and has been at the helm of this strategy since February 2012. He heads the fixed-income desk at UTI and has been managing this fund since 2012. Overall, we think that the strategy is well placed to maintain consistency in its performance profile over the long term with the exception of periods that are characterized by volatility and market uncertainties.
Gilt fund score on their safety and credit rating and despite being volatile could be a good investment for the debt portfolio.
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