The RBI, on Monday, had cut the bank rate by 1 per cent to 8 per cent while the cash reserve ratio or CRR was cut by 50 basis points to 10.5 per cent. In response to the cut, the prices of government securities in the short-to-medium term had immediately shot up in the range of 30-40 paise.

The bond fund from DSP-ML AMC has been the top performer with the NAV rising from Rs 12.42 on February 26 to Rs 12.5 on March 3. In the case of income option, the NAV has moved up by 7 paise to Rs 11.20 in the same period.

Almost 45 per cent of this Rs 375-crore fund is currently invested in government securities, up from 31 per cent in December last year. ``We received fresh money in the last couple of months and invested it ingovernment securities in the absence of good-quality corporate debt,'' said S Naganath, chief investment officer, DSP-ML AMC.

Fund managers point out that the rally has largely been confined to GoI securities and has not percolated to corporate debt.

``In the last 7-8 months, credit quality has been a key issue and nobody wants to part with triple A or double A plus debt papers. Once you sell this paper, problems arise on the deployment front and hence, trading has been subdued in this section,'' said a fund manager.

The gilts fund from Kotak Mahindra has seen its NAV vault from Rs 10.16 to Rs 10.22 for the savings plan. In the case of investment plan, the NAV has moved up from Rs 10.18 to Rs 10.24. The open-end fund from Escorts AMC has appreciated by 6 paise to Rs 11.07.

``This is a one-time appreciation and the rise in prices has now tapered off. Funds will now have to manage assets in a lower interest rate regime,'' said an analyst.