INSUBCONTINENT EXCLUSIVE:
Investors could start a oneyear systematic investment plan (SIP) in gilt schemes, a mutual fund product that invests in government
corpus that could benefit from the subsequent easing of yields.
Bond yields and prices move in opposite directions: when yields rise, prices
Investors in gilt funds look to bet on fall in bond prices or falling yields
through the volatility as interest rates are likely to be volatile
will help them average their investments as yields peak out over the next one year and earn annualised double-digit returns over the next
interest rate cycle or three years.
Once this investment is done, through SIP for one year, they can just hold on to their investments for
the next 2-3 years to get maximum benefits of the interest rate cycle and tax benefits through indexation
said Rupesh Bhansali, Head (Distribution), GEPL Capital.
While it is difficult to predict when interest rates would peak out in a rising
interest rate environment, Bhansali believes interest rates could peak out over the next six months and on the higher end the 10-year
benchmark could move up by another 25-50 basis points from the current levels of 8 per cent.
Fund managers in gilt funds have the ability to
As interest rates decline, they can raise duration and many a time could take it to even as high as 15-20 years.
If interest rates were to
decline by 200 basis points over the next 3-4 years, and the portfolio has a duration of 10 years, investors could stand to earn a capital
appreciaton of 2.5-3 per cent every year
Adding the interest income of 8 per cent every year and a capital appreciation of 2.5 per cent every year, investors stand to earn an
annualised 10.5-11 per cent every year on their investment.
Financial planners say that gilt funds score over credit funds or corporate
bonds as there is no credit risk and capital protection is more or less guaranteed as they invest into government securities
Also, such funds score as retail investors find it difficult to access government securities on their own.
