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Mutual Fund Review: HDFC Gilt Fund – LTP

Type: Gilt – Long Term
Fund Manager: Shabbir Kavasi
Launch Date: 17-Jul-2001
 
HDFC Gilt Fund – LTP has generated a merger return of 1.65% in the last one year period, the scheme has been in existence for more than five years and on a CAGR basis, it has grown appreciated by 8.42 per cent since inception, which is good, but, debt products have seen a reversal in fortunes in the last 2-3 years, and the different categories have found it difficult to generate returns for their investors. Among all the different categories of mutual fund schemes in India, Gilt funds as a category have been the worst performing in the last one year.
 

Even within the category, the money is flowing out from gilt funds and long term debt products to floaters and short-term schemes, on account of the increased volatility and interest rate risk.

HDFC Gilt fund –LTP has witnessed erosion in capital and it currently manages a tiny corpus of Rs 38.28 crores, which is a reduction of over 50 per cent the scheme had a sizeable corpus of over Rs 200 crores just a couple of year back, but since then it has fallen out of favour.
 
The scheme has invested 48% of its assets in gilt securities and the rest of the assets are parked into cash and equivalents. A small corpus and an unfavourable market have prevented the scheme from generating decent returns. The scheme currently has exposure only to medium term gilt securities and exposure to long term papers have been pruned.
 

The scheme has underperformed its benchmark by a huge margin, which has generated a return of 5.22% in the last one year, and has been ranked at the bottom of the table. The average maturity of the scheme as on Dec 06 is 2.26 years, which has come down significantly because of the schemes investment in medium term papers and sell-off in higher maturity securities.

Gilt funds are never suitable for investors who seek stability in returns as long term securities are by nature more volatile than near-term papers. Long-term gilt securities carry more interest rate risk, but the returns from these papers had been attractive in the past, thereby compensating for the additional risk undertaken. In a rising interest rate case scenario – as we are witnessing now – gilt funds are the worst affected.
 

After the CRR hike by the Central Bank of India, there has been a fall in yield at the long end of the curve and currently there is liquidity strain in the markets. Both the factors do not augur well for the scheme. Even though there have been some pre-emptive measures by the RBI, the credit growth has shown no signs of slowing down. It is widely expected that we may another round of hardening of interest rates, and against this backdrop investment in long term gilt funds is not advisable.

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Also, know how to buy mutual funds online:

 

1) DSP BlackRock Mutual Funds:

http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html

 

2) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html

 

3) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-hdfc-mutual-funds-online.html

 

4) Sundaram Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-sundaram-mutual-funds-online.html

 

5) Birla Sunlife Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-birla-sunlife-mutual-funds.html

 

6) UTI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-uti-mutual-funds-online.html

  

7) SBI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-sbi-mutual-funds-online.html

 

8) Edelweiss Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-edelweiss-mutual-funds-online.html

 

9) IDFC Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-idfc-mutual-funds-online.html

 

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