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Debt Funds now Invest more in G-secs

Anticipations of rate cuts are making debt funds pump money into sovereign bonds. Also, gilt funds have gained new fan-following

The rate cut by the RBI of 50 basis points in 2015 has increased the AUM of as well as the inflows into gilt funds. Further anticipations of rate cuts have increased the demand for gilt funds, making investors pump in money for better returns.

 

According to March 2015 data, open-ended income funds have also invested in long term government bonds as corporate bonds generally have a maturity of maximum five years. In 2014, SBI Dynamic Bond Fund had invested 5.92 per cent of its AUM in G-secs, whereas in 2015 it has invested 90.92 per cent, depicting that fund managers are moving towards g-secs for longer-tenure investments. In March 2015, IDFC Super Saver Income Fund has invested 99.14 per cent of its AUM in government securities.

 

According to AMFI data, in March 2015, the inflow into gilt funds was R2,385 crore, which is the second highest since January 2013. Also, the funds have witnessed positive net flows of R8,581 crore in the last six months. In March, the AUM of gilt funds was R14,614 crore, which is the highest since 2004. Gilt medium- and long-term funds have outperformed income funds as their one-year returns are 17.44 per cent, whereas income funds' one-year return is 13.45 per cent.

Gilt funds are funds that invest in government securities (G-secs) issued by the Reserve Bank of India on behalf of the government. Gilt funds are an avenue for retail investors to participate in the market.

Gilt funds are ideal for those who want more safety for their investments or are risk-averse and, at the same time, are looking for reasonable returns on their money. This may be considered as the ideal time to invest in these funds as there is an inverse relationship between bond prices and interest rates. A fall in interest rates leads to a rise in bond prices and vice versa.

Asset Allocation of Income Funds in Government Bonds

 

Scheme Name

31/03/2015

31/03/2014

Difference (% points)

SBI Dynamic Bond Fund

90.92

5.92

85

IDFC Super Saver Income Fund - Investment Plan

99.14

16.54

82.6

SBI Magnum Income Fund

79.77

5.94

73.83

HSBC Flexi Debt Fund

82.12

15.84

66.28

Religare Invesco Active Income Fund

84.77

38.8

45.97

DSP BlackRock Strategic Bond Fund

57.02

21.6

35.42

Axis Income Fund

53.09

25.21

27.88

L&T Flexi Bond Fund

57.23

30.31

26.92

Axis Dynamic Bond Fund

39.01

19.46

19.55

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