Gilt funds delivered the highest returns among debt-oriented categories in the January-March quarter on hopes of decline in interest rates, according to Crisil Mutual Fund Ranking.
The category, represented by Crisil-Amfi gilt fund Performance Index, delivered absolute returns of 2.85 per cent for the quarter compared with Crisil-Amfi income fund Performance Index's 2.46 per cent.
Short-term debt fund delivered a return of 2.25 per cent in the quarter ended March 31, 2016, while that of ultra short fund and liquid fund was at 2.13 per cent and 2 per cent respectively.
Bond prices and yields move in opposite directions. A fall in interest rate benefits long-term debt oriented funds.
"Gilt funds gave the best returns in the debt-oriented category for the quarter ended March 31, 2016, riding on hopes of continuing decline in interest rates...This sentiment pushed the long end of the sovereign yield curve (10-year benchmark) down 30 basis points to 7.46 per cent and bolstered long-term debt funds, specifically the gilt-edged ones," the report noted.
Over the past one year, gilt funds provided a return of 5.82 per cent, while income fund offered a return of 5.52 per cent.
Short-term debt fund, ultra short fund and liquid fund provided a return of 8.04 per cent, 8.4 per cent and 8.2 per cent respectively.
"The gains for gilt funds, however, came mostly in the last quarter of fiscal 2016, after having languished for the most part despite 75 bps of rate cuts by the Reserve Bank of India (RBI). This was visible in their 5.82 per cent returns for the past 12 months, which is lower than the over 8 per cent returns given by short-maturity debt funds," it added.
