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Advantage debt funds

Feb 22 2013, 09:06 IST
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SummaryIn a falling interest rate scenario, government securities are an attractive investment option. Here’s why.

funds is not entirely risk-free. Though it does not carry a credit risk — G-Secs have a sovereign guarantee — the interest rate risk is there. When interest rates rise, G-Secs fall, which, in turn, impacts return. Again, long-term G-Secs can be illiquid. If there is a redemption pressure, the funds will have to be liquidated at a loss.

Having said that, investors with a horizon of over a year could allocate funds based on the risk and time horizon in this product. Will returns generated in 2008-09 be revisited in gilt funds? It’s a conjecture. But what can be expected on a prudent note is inflation beating returns.

Allocation to gilt funds, based on the time horizon, in an investor’s portfolio should be actively considered. A falling interest rate scenario gives confidence of inflation beating returns.

The author is founder and managing partner of Zeus WealthWays LLP

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