Gilt/income funds perk up on rate cuts - Views on News from Equitymaster

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Gilt/income funds perk up on rate cuts

Oct 30, 2002

Debt markets welcomed the triple rate cut announced by the Reserve Bank of India. The announcement pushed bond yields lower. The direct result was a surge in income and gilt fund net asset values (NAVs). The RBIís move to lower rates on three fronts by 25 basis points each Ė cash reserve ratio to 4.75%, daily repo rate to 5.50% and bank rate to 6.25%. Since bond markets had not expected a bank rate cut, the move was welcomed by the markets. The RBIís move to cut rates on three fronts was largely unexpected and it reinforced RBIís commitment towards a softer interest rate regime, ensuring adequate liquidity for credit growth and introducing flexibility in the interest rate structure over the medium term.

Gilt Funds: The credit policy Ďkickerí
Gilt (Long Term) Funds NAV (Rs) 1-Wk 1-Mth 6-Mth 1-Yr 3-Yr Incep.
TEMPLETON GSEC G 18.2 0.7% 2.0% 6.4% 21.3% 20.1% 19.5%
BIRLA GILT LT G 17.2 0.6% 1.8% 6.2% 21.2% 19.5% 19.5%
K GILT INV G 17.9 0.6% 1.7% 5.5% 18.8% 17.4% 16.3%
ZURICH I SOV GILT PT G 14.7 0.5% 1.5% 4.8% 18.4% NA 15.5%
K GILT INV D 10.7 0.6% 1.7% 5.5% 17.4% 15.5% 14.7%
(NAVs as on October 29. Growth over 1-Yr is compounded)

As a result of the positive news, bonds rallied. The benchmark ten-year bond traded below the 7%-yeild mark, before creeping back. In fact, the RBIís announcement served to bring down yields across the entire maturity spectrum by 5-15 basis points. This resulted in a surge in income/gilt fund NAVs. (If you would like to receive daily income/gilt fund NAV alerts in your mailbox, please click here

Income Funds: On a surge
Income (Long Term) Funds NAV (Rs) 1-Wk 1-Mth 6-Mth 1-Yr 3-Yr 5-Yr Incep.
ZURICH I HIGH INT G 20.2 0.4% 1.4% 6.7% 15.1% 14.1% 12.7% 13.4%
BIRLA INC B 24.6 0.3% 1.4% 6.5% 15.0% 13.9% 13.4% 14.6%
TEMPLETON INC. BLD G 20.3 0.3% 1.5% 6.4% 14.9% 14.4% 13.8% 14.1%
HDFC INCOME G 13.7 0.4% 1.4% 6.4% 14.8% NA NA 15.2%
IDBI-PRIN INC G 13.5 0.3% 1.3% 6.3% 14.6% NA NA 15.9%
TEMPLETON INC G 20.8 0.3% 1.3% 6.1% 14.2% 13.8% 13.3% 13.8%
(NAVs as on October 29. Growth over 1-Yr is compounded)

However, investors who plan to capitalise on RBIís credit policy by entering into income/gilt funds right now, may have missed the bus, at least to some extent. Those were already invested in income/gilt funds before the RBIís announcement are the ones who have benefited the most.

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