Getty ImagesGilt funds invest in government-securities or G-secs. As per Sebi norms, these schemes must invest 80% of their corpus in government securities. As you see, these schemes invest in government papers or they lend to the government. Therefore, they don’t have any credit risk or they face zero defaults. However, they are extremely sensitive to interest rate changes.
These factors make investing in gilt funds extremely tricky. You should be well-informed about interest rate changes in the economy. For example, interest rates are supposed to go up in a few months. And interest rate cycles usually last for a few years. As said earlier, this will have an adverse impact on gilt schemes.
Does that mean you should not invest in these schemes? Not really. But you should invest only if you have the time to wait for the interest rate cycle to turn around. In other words, investors should be able to invest at least around five years. This will help investors to benefit from soft interest rates. For example, the interest rates may go up and the trend may last for a year or two. After that interest rate may start falling, which is beneficial for gilt funds.
These schemes offer double-digit returns when rates start falling or in anticipation of interest rate falls. Currently, gilt funds are offering around 2.32% in the last one year. They have given around 7.90% in three years, 6.32% in five years.
If you are interested in investing in these schemes, here are our recommended schemes. However, you should remember that these schemes are highly volatile. Only investors with high tolerance for risk and a higher investment horizon should invest in gilt funds.
Best gilt funds to invest in 2022:
Methodology:
ETMutualFunds.com has employed the following parameters for shortlisting the debt mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i)When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii)When H <0.5, the series is said to be mean reverting.
iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.
Asset size: For debt funds, the threshold asset size is Rs 50 crore
(Disclaimer: past performance is no guarantee for future performance.)
These factors make investing in gilt funds extremely tricky. You should be well-informed about interest rate changes in the economy. For example, interest rates are supposed to go up in a few months. And interest rate cycles usually last for a few years. As said earlier, this will have an adverse impact on gilt schemes.
Does that mean you should not invest in these schemes? Not really. But you should invest only if you have the time to wait for the interest rate cycle to turn around. In other words, investors should be able to invest at least around five years. This will help investors to benefit from soft interest rates. For example, the interest rates may go up and the trend may last for a year or two. After that interest rate may start falling, which is beneficial for gilt funds.
These schemes offer double-digit returns when rates start falling or in anticipation of interest rate falls. Currently, gilt funds are offering around 2.32% in the last one year. They have given around 7.90% in three years, 6.32% in five years.
If you are interested in investing in these schemes, here are our recommended schemes. However, you should remember that these schemes are highly volatile. Only investors with high tolerance for risk and a higher investment horizon should invest in gilt funds.
Best gilt funds to invest in 2022:
Methodology:
ETMutualFunds.com has employed the following parameters for shortlisting the debt mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i)When H = 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii)When H <0.5, the series is said to be mean reverting.
iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.
Asset size: For debt funds, the threshold asset size is Rs 50 crore
(Disclaimer: past performance is no guarantee for future performance.)
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