April 2009: Gilt Funds Shine as RBI Cuts Rates, Inflation Cools

In April, government bonds rallied, owing to a decline in inflationary pressures, interest rates cut by the central bank and surplus interbank liquidity.
By Chintamani Dagade |  08-05-09 | 
 

In April, government bonds rallied, owing to a decline in inflationary pressures, interest rates cut by the central bank and surplus interbank liquidity.

The Reserve Bank of India cut the repo and reverse repo rates by 25 basis points to 4.75% and 3.25%, respectively. At the end of the month, the yield on 10-year benchmark paper, 6.05%, 2019 declined to 6.22%, down from 6.96% in March, leading to rise in bond prices.

The weak economic data and bond purchases by the nationalized banks for their SLR (Statutory Liquidity Ratio) requirements also boosted the bond prices. The market was also buoyed by a decline in industrial production, which led to expectations of an increase in interest rates.

The industrial production declined by 1.2% year-on-year in February, compared with an increase of 0.4% in January 2009.

India Liquid

Liquid funds invest primarily in money market and debt instruments with residual maturity, which does not exceed 91 days.

Within this category, DWS Cash Opportunities delivered the highest return of 0.64%, compared with its category peers, which registered 0.39% returns. Out of 57 funds considered in this category, 36 funds outperformed the category. Religare Overnight was the worst performer for the month with marginal gain of 0.1%.

India Short-Term Bond

The short-term bond funds invest in corporate and government bonds, with maturities between one- to three-years. These funds are fairly conservative and carry lesser interest rate risks, compared with longer duration bond funds.

Within this category, LIC Bond outperformed its peers by generating 5.2% return. In comparison, the short-term bond category posted 1.5% return. Out of 38 funds considered, only 15 funds managed to beat peers during the month.

India Intermediate Bond

The intermediate bond funds invest in corporate and government bonds with maturities between three- to seven years. These funds are more prone to interest rate risks than short-term bond funds.

The bond rally boosted these funds performance, which delivered 3.1% return last month. Out of 37 funds, only 20 funds outperformed the category peers with ICICI Prudential Income Opportunities Retail Plan generating the highest return of 5.7%. JM Income and Sundaram BNP Paribas Select Debt Dynamic were the worst performers with negative returns of 0.4% and 0.1% respectively.

India Long-Term Bond

The long-term bond funds invest primarily in corporate and other investment-grade debt instruments with residual maturities greater than seven years. Since, these funds hold longer maturity securities, they are highly sensitive to interest rate risks.

Within the long-term bond category, ICICI Prudential Income posted the highest return of 6.1%, compared with its category average of 2.8%. Out of 11 funds considered, five funds outperformed peers. Sundaram BNP Paribas Income Plus delivered the least return of 0.1%.

India Short Government

The funds investing in short maturity government bonds delivered 1.1% return in April. HSBC Gilt Short Term was the best performer in this category with 3.8% return.

Out of 17 funds considered, only six funds beat the category peers. Baroda Pioneer Gilt was the worst performing fund in this category. The fund posted of 0.05% negative return.

India Intermediate Government

The intermediate government portfolios, which invest between three- to seven-year maturity papers, generated 3.1% return last month. The best performer in this category was LIC Government Provident Plan, which registered 6.8% return.

Only 13 funds managed to outperform the category peers, out of 28 funds available in this category. Tata Gilt Retirement was the worst performing fund with -2.2% return.

India Long Government

The long government funds have average maturity more than seven years. The rally in government bonds boosted performance of longer maturity papers resulting in outperformance by these funds, which delivered 3.8% return.

ICICI Prudential Gilt Investment PF Plan was the best performing fund within this category. The fund recorded 7.9% return for the month. Out of 22 funds available in this category, only nine funds outperformed the category average. Templeton India Government Securities Long Term Plan was the least performing fund with 1.2% return.

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