Top Gilt Mutual Funds for Investment in September 2024
Today, gilt funds are being promoted to aggressive and sophisticated debt investors with the promise of a fund earning double-digit returns. This has been assumed on the premise that the Reserve Bank of India (RBI) may look to begin cutting interest rates in the second half of 2024. Gilt funds, primarily invested in government securities, are doing well in an environment of falling interest rates, and double-digit returns are possible.
Investors seeking a probable cut in the interest rates should consider gilt mutual funds. Gilt funds, however, are extremely risky and sensitive to interest rate fluctuations. In fact, they are best suited for well-informed investors who have a longish investment horizon and a risk-taking capacity.
Experts caution one normally against gilt funds for regular debt investors because the returns are relatively volatile. Gilt funds decline if the interest rates increase as the price paid for the bonds and the yield or the returns from the yield tend to move in opposite directions. The rise of interest rates brings down the price of the bonds. Consequently, the net asset values of such funds decline.
Those who invest at least 80% of their corpus in government securities are debt mutual funds. As per SEBI guidelines, they are free from credit risk or default. However, they are highly sensitive to interest rate changes and thus a tricky investment choice.
Investment in gilt funds needs to be taken in view of the trends of economic interest rates, which may remain in operation for years. While high interest rates may cause harm to gilt funds, one could enjoy positive returns later by waiting for them to soften.
Best Gilt Mutual Funds for September 2024
1. Nippon India Gilt Securities Fund
2. Bandhan G-Sec Fund
3. SBI Magnum Gilt Fund
4. ICICI Prudential Gilt Fund
5. Aditya Birla Sun Life Government Securities Fund
Methodology
These parameters were used to shortlist gilt mutual fund schemes:
1. Mean rolling returns: On a daily basis for the last three years.
2. Consistency over the last three years: Measured using the Hurst Exponent (H) for calculating how random the NAV series of the fund is.
- H = 0.5: This is a geometric Brownian time series. It’s very hard to predict its returns.
- H < 0.5: The series means reverts.
- H > 0.5: Shows persistence or trend in the series. The greater H is, the less volatile the series is.
3. Downside risk: Only negative returns have been taken into consideration in the above calculation.
X = Returns are negative.
Y = Add all the squares of X.
Z = Y / the days used in the calculation
Downside Risk = Square root of Z.
4. Beating the benchmark: This is arrived at by subtracting the return in the benchmark from the return of the fund. Both, active and benchmark returns have been derived based on daily rolling returns. Then the active return has been derived.
5. Size of assets: Only debt funds with over Rs 50 crore under management are included.
These gilt funds are hence a great prospect for investors seeking these possibly strong gainer gilt funds for risk exposure in relation to actual interest rates but with interests in their resultant gains and volatility.
