I wrote on 16th April 2013 on how one should switch funds from plain debt funds to Gilt funds to take advantage of the impending fall in interest rates. I explained how long-term Gilt funds are hyper-sensitive to interest rates and pointed out (quoting experts) that a one basis point change in yield on a 30-year bond can change the price of the bond by 10 to 11 paisa, where as a one basis point change in yield on a 10-year bond can change the price by 7 paisa.
Well, for once, I followed my own advice and moved a big chunk of my funds into three of the best long-term Gilt Funds, namely, IDFC G-Sec. Fund – Investment Plan, HDFC Gilt Fund Long Term – Growth & Birla Gilt Plus – PF Growth.
When I checked on 10th May 2013, I realized that there were really huge returns to be made and I switched more of my funds into Gilt Funds.
Well, 30 days have passed since the first switch and lets look at the performance of the Gilt Funds till now:
|
Name of the Gilt Fund |
NAV on 16.04.2013 |
NAV on 17.04.2013 |
Absolute Return (Rs) |
Absolute Return (%) |
Annualized Return (%) |
|
IDFC G-Sec. Fund – Investment Plan |
13.735 |
14.138 |
0.403 |
2.93% |
35.21% |
|
HDFC Gilt Fund Long Term – Growth |
23.795 |
24.721 |
0.926 |
3.89% |
46.69% |
|
Birla Gilt Plus – PF Growth |
31.447 |
32.822 |
1.375 |
4.37% |
52.46% |
So, as you can see, Birla Gilt Plus – PF Growth rules the roost with an incredible 52.46% annualized return. HDFC Gilt Fund Long Term – Growth trails behind with a 46.69%. IDFC G-Sec. Fund – Investment Plan is a “laggard” with “only” 35.21% return.
Now, the million dollar question is how long this bonanza will last. Who knows, but my guess is that the returns from Gilt Funds may taper but till the interest rates keep softening, the Gilt Funds will outperform plain vanilla Debt Funds.
Fortunately, thanks to Subba Rao’s conservative approach, there is a long-way to go before the interest rates are fully relaxed. This means that there are more gains left in the G-Sec Funds.
Then the question is whether there is any downside to switching to Gilt Funds. Well, if you select a Fund that has no entry or exit load, then there is no incremental downside to switching to G-Sec Funds. You can always switch back if the G-Sec Funds are not to your expectations.
Is it just a monthly return of 4% or you actually received 50% on annual basis?
The monthly return is 4%, caused by an aberration of sudden demand for Gilt Bonds. It will taper off but you should still get an annualized return that is several basis points higher than what a plain debt fund will provide. For e.g. the present one year return of the IDFC GSec -Inv Plan -IP B (G) is 16.8% which is higher than what you would get from a non-Gilt Debt fund.