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Gilt funds – Low risk, higher returns

Jan 11, 2001

Who says high risk always translates into higher returns? Or for that matter low risk investments will always give lower returns? Gilt funds invest in long-dated (more than 12 months) government paper (gilts). To that extent, gilt funds are credit risk free, but still have to deal with risk from interest rate volatility. Being at the lower end of the risk spectrum, returns from gilt funds are also low.

Open-ended, Gilt Schemes NAV
(Rs)
Last
week
Last
month
Last
year
Since
inception
Cangilt 13.7 0.0% 0.0% 18.9% 34.3%
JM G-Sec (PFP) (Gr) 12.3 1.1% 3.2% 17.6% 17.5%
JM G-Sec (RP) (Gr) 12.1 1.1% 3.1% 16.5% 16.3%
Templeton Govt Sec (Gr) 12.5 0.9% 2.9% 15.5% 15.5%
DSP ML G-Sec. Fund A(Gr) 11.9 0.8% 2.5% 14.1% 14.6%
Birla Gilt Plus (LT) (Gr) 11.8 0.8% 2.5% 13.4% 14.4%
Pru ICICI Gilt(IP)(Gr) 12.0 0.8% 2.3% 13.4% 13.6%
K Gilt Serial 2007 (Gr) 11.7 0.4% 1.8% 13.2% 14.0%
K Gilt Investment (Gr) 12.7 0.8% 2.2% 12.2% 12.5%
K Gilt Serial 2003 (Gr) 11.5 0.5% 1.4% 11.8% 12.3%
Pru ICICI Gilt(TP)(Gr) 11.7 0.4% 1.1% 11.8% 11.8%
Birla Gilt Plus Inv. (Gr) 11.5 0.8% 2.1% 11.5% 11.9%
LIC Govt. Sec. (Gr) 11.3 0.4% 1.0% 11.5% 11.6%
Cangilt PGS (Gr) 11.1 0.6% 1.5% 11.3% 11.3%
Dundee Sov. Trust (Gr) 12.0 0.7% 2.3% 11.0% 12.0%
(The above table only shows the best performing gilt funds over 12-months)

On the other hand, investments in stocks or equity funds are at the higher end of the risk spectrum. Consequently returns should be commensurate with the risk and investors should be rewarded with higher returns, as opposed to say a gilt fund investor. The operative words in the above statement are ‘should be’.

Open-ended, Growth Schemes NAV
(Rs)
Last
week
Last
month
Last
year
Since
inception
Dhanavikas (1) 8.0 1.4% -5.0% -30.5% -2.8%
Pru ICICI Growth (Gr) 20.8 1.2% -8.8% -31.7% 32.8%
Taurus Starshare 8.4 -1.1% -6.9% -32.0% -3.7%
DSP ML Equity Fund 16.9 0.5% -3.8% -32.6% 22.8%
ING Growth (Gr) 13.8 3.9% -16.1% -33.6% 22.7%
Grandmaster 1993 10.8 0.7% 4.7% -35.2% 0.1%
Canbonus 9.7 2.9% -4.4% -35.4% 2.0%
IL&FS Gr & Val (Gr) 12.2 1.2% -8.1% -37.5% 0.7%
JM Equity Fund (Gr) 9.8 2.1% -9.5% -38.2% 0.2%
K P Prima Fund (Gr) 20.8 4.1% -1.9% -41.5% 10.9%
Magnum Equity Fund 12.7 1.3% -9.0% -42.1% 13.6%
Birla Advantage Fund 31.2 1.0% -11.5% -43.2% 27.0%
Magnum Global Fund 9.9 2.3% -10.3% -48.7% 1.6%
Magnum Multiplier Plus 1993 14.5 -2.1% -13.9% -56.1% 6.1%
(The above table only shows the worst performing diversified growth funds over 12-months)

However, as the table above shows, over the last 12 months equity funds have performed most dismally, punishing investors for taking a higher risk. As opposed to that, gilt funds (see first table) have rewarded investors with higher returns, despite being a low-risk investment.

So while high risk must go hand-in-hand with high returns, that may not always be the case. Over the last 12 months, given the volatility in the markets and the software meltdown, investors have learnt the hard way that growth funds can be anything but that. And that gilt funds maybe low risk, but the returns could be much higher.

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