Gilt funds buck the downturn

This October, the mutual fund industry witnessed a massive loss in its average assets under management (AAUM) of over Rs 97,000 crore. However, a small segment of debt schemes managed to buck the trend — gilt funds.

Short-term gilt funds collected the maximum, over Rs 1,500 crore, and the medium- and long-term category netted another Rs 70 crore. In fact, the short-term category’s AAUM is up from a paltry Rs 501 crore to Rs 2,018 crore. Gilt funds are open-ended debt funds, which invest almost the entire corpus in government securities.

While the medium-and-long-term (over one year) category average returns is at 9 per cent, some of the bigger funds have been able to give really good returns — ICICI Prudential Gilt Investment (17.15 per cent), many others have given returns between 14 and 16 per cent. Even the short-term gilt category (less than a year) has given returns of 6.44 per cent.

Santosh Kamath, chief investment officer, fixed income, Franklin Templeton Mutual Fund, said, "We have witnessed aggressive monetary easing across the globe in response to the credit crisis... In India, RBI has also cut its key rates in recent weeks to ease liquidity pressures. This led to a decline in bond yields, helping the performance of gilt funds.”

Compared with returns from other categories, gilt funds (medium-and-long-term) are just below FMPs (9.31 per cent) and Gold ETFs (11.39 per cent) in the last one year, according to data from Value Research, a mutual fund research firm.

“Already the money that is moving out of liquid and liquid plus funds is going to gilt funds,” said Mukesh Dedhia, director, Ghalla and Bhansali, a financial planning firm.

Financial planners are also recommending these funds now, especially because of the safety factor. That is, because of their high exposure to government securities, they are now being perceived as safer bets.