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New interest regime adds lustre to gilt funds

Our Bureau

KOLKATA, July 11

FAR away from the clamour over US-64 are gilt funds, a breed that is evolving fast, thanks to changes in the Government securities market, increase in returns and rise in assets under management. Or so preach mutual fund distribution and research agencie s.

Take, for instance, Cholamandalam Distribution Services (CDS), which has come out with a special report based on the performance generated by select gilt funds. According to the report, one of the reasons behind the recent performance of gilt funds is th e softening of interest rates.

The average one-month returns from these funds stood at 3.6 per cent in absolute terms. Annualised, this came to around 43 per cent. As for the past quarter, the average was 7.02 per cent (absolute), and a number of funds outperformed the average score.

Of the funds selected by CDS, schemes managed by Alliance Capital and Templeton India were at the two ends of the spectrum. Their three-month absolute returns as on July 6 were 6.46 per cent and 8.04 per cent, respectively.

As for gilt prices, the distributor has focussed on the recent swings. Between July 2 and 6, prices were zooming -- an increase that may be partly attributed to ``declining hopes of another rate cut''. The rupee and the UTI crisis also played a role in t his matter.

Gilt funds, it is felt, are ideal for investors who are willing to remain invested for the medium or long term. In the short term, there could be some fluctuations.

Their assets under management are growing, as is evident from some of the figures collated by the distribution outfit. As on April 30, 2001, assets of the funds selected by CDS stood at Rs 2,448 crore. This went up to Rs 2,887 crore as on May 31, a net i ncrease of 18 per cent.

Fund circles confirm that their gilt products have lately seen substantial inflows. In terms of size, these funds are a mixed lot, with some being as big as Rs 400 crore-plus. In this league are funds from SBI Mutual Fund and Templeton India.

On the other side, a few such as Alliance Capital, Escorts MF and Zurich India have small sizes (less than Rs 10 crore each).

According to Value Research, a specialist fund research agency, most gilt funds have yielded returns of more than five per cent over three months ending June 30. On a one-year basis, this figure is over 15 per cent for most funds, with the leading player s generating as much as 20 per cent. The latter included funds from JM Mutual Fund, Templeton India, Birla Sun Life and DSP Merrill Lynch.

The one-year sector average for these funds was 17.21 per cent, which may be viewed against the JP Morgan G-Sec Index and the i-Bex Total Return Index. These indices were at 18.59 and 18.3, respectively, during this period.

Even the laggards managed to record over 10 per cent during the year, Value Research has contended. The funds that figured in this category included LIC Government Securities, Alliance GSF Long Term, UTI G-Sec and Zurich India Sovereign Gilt Investment.