Rama Krishna Vadlamudi, Hyderabad 18 August 2012 www.ramakrishnavadlamudi.blogspot.com
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What are Gilt Funds?
Gilt funds are debt mutual funds that invest mostly in Government securities and a smallportion in short-term money market instruments. Government securities (hereinafterreferred to as G-Secs) are bonds issued by the Central Government and StateGovernments – they carry sovereign guarantee. Basically, government securities arepromissory notes issued by a government for raising money. Because they are guaranteedby the government, they are known as gilt-edged securities or simply gilts. The majorinvestors in G-Secs are banks, insurance companies, RBI and primary dealers.Gilt funds keep a small portion of their funds in money market instruments (that offerhigher liquidity), such as, commercial papers, certificates of deposit, call money, CBLO,or treasury bills. Keeping certain amount in money market papers enables the gilt fundsto meet investor redemptions, make profitable investments in attractive papers and takebets on G-Secs depending on the market conditions.
What are the Best Gilt Funds?
Indian investors have a wide variety of debt mutual fund options. Gilt funds are a type of debt mutual funds. My research on the gilt funds available in India shows that investorscan consider the following gilt funds for investment depending on their investment needs,risk appetite, time period and availability of surplus funds:
1. Birla Sun Life Government Securities Fund Long-Term:
Present NAV is Rs 31.99 (growth option)Latest AUM is Rs 306 crore
2. Kotak Gilt Investment Regular:
Present NAV is Rs 37.96 (growth option)Latest AUM is Rs 152 croreYou may see Appendix I for full details of the above schemes and other gilt funds. Thegilt funds given in the Appendix I typically invest in long-term bonds. Prices of long-term bonds are more sensitive to interest rate changes than prices of short-term papers.As such, long-term bonds gain the most when interest rates fall. On the contrary, if interest rates rise, the prices of long-term bonds lose more compared to short-term bonds.If you want to read more about government bonds, just click:http://ramakrishnavadlamudi.blogspot.in/2009/12/government-securities-market-in-india.html It is not advisable to invest in gilt funds that have very low AUMs. Some gilt funds arehaving meager AUMs of Rs 10 crore or even Rs 1 crore .