Understanding Gilt Fund's Mechanism

[msa5678]

Opening this thread upon request of Vikas Rawatji , to continue the discussion on GILT funds, which was started in the thread "New to Forum - Advise needed on my SIP".http://www.traderji.com/community/index.php?threads/99308/

Continuing the discussion forward. The reasoning behind my interest in GILT funds stems from my observation that most of the funds in this category have given yearly returns of 12 to 15 %, which is quite rewarding, considering the fact that the maximum drawdown is only in the range of 2 to 3%. Compare this with EQUITY funds which give 30 to 40% which have max drawdown of 15 to 20%.

Coming to the query, Other than revision in interest rates, what other factors affect the returns from these funds.

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[msa5678]

Pls see the attached image , there is a sudden spike of around 6% within a month (November 2016), what could be the reason behind this? Are these type of scenarios predictable?

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[Subhadip]

Pls see the attached image , there is a sudden spike of around 6% within a month (November 2016), what could be the reason behind this? Are these type of scenarios predictable?

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No..not predictable...Gilt fund is good at the time of rate cut...but reverse will be painful if it happens

Hope I am right in my understanding

 

[Subhadip]

I have investment in the fund you have shown in picture

 

[Subhadip]

It is better to invest in dynamic bond fund rather than long term Gilt fund..

 

[msa5678]

I have investment in the fund you have shown in picture

It is going pretty flat since the past 3 months, hope it will start performing soon to keep the yearly returns figure from falling down.

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[msa5678]

It is better to invest in dynamic bond fund rather than long term Gilt fund..

Dynamic Bond funds look quite promising compared to GILT funds. But the almost 12% fall in Feb 2016 is holding me back.

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[Subhadip]

Diversify among them

 

[Vikas Rawat]

Pls see the attached image , there is a sudden spike of around 6% within a month (November 2016), what could be the reason behind this? Are these type of scenarios predictable?

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Haa Haa Haaa.. that was a historic month November 2016.. How can you forget that. November 2016 was the month of DEMONETISATION..

Demonetisation boosted liquidity in the banking system, drag interest rates down sooner than expected, and long-term debt schemes benefited most in a falling interest rate regime.

 

[TracerBullet]

There is always some risk for reward. Gilt funds can be dangerous at turns. See performance of pure gilt when interest rates were suddenly increased some years back ( Around RR appointment ). They can give -5%+ moves(probably more from peak) in very short term easily and not recover from it for long time. I dont think very long term (~10 yrs) performance of gilt gives enough(or any?) reward for the extra volatility it gives. Best to use them when IR are elevated. Right now they look good looking back because rates have been falling down. I moved from gilt to dynamic earlier and they gave good returns. Now have reduced longer duration.

BSL Treasury optimizer seems nice for lower duration risk for current env. Or if you want even less drawdawns then HDFC Medium Term. These are all for small income above inflation only. Never seen anyone trade bonds here.

Inflation, CAD, Foreign Flows/Rupee movement can impact yields i think but these are hard to predict at turns.