G-Sec rally boosts returns from long-term gilt funds

Jai Kumar NR

New Delhi, Oct 3: The long-term gilt funds have given a whopping weekly return of up to 3.56 per cent during the period September 21-28. The sharp jump in returns is in the backdrop of a spurt in government bond prices during the last week.

Gilt funds like Chola Gilt Investment, Templeton India GSF, K Gilt Investment Plan, Birla Gilt Plus Investment, Prudential ICICI Gilt Investment, JM G-sec Regular and Birla Gilt Plus Long-term have given weekly returns in the range of 2.7-3.56 per cent.

The impact of the G-sec rally on gilt funds’ net asset value (NAV) is visible as of a total of 22 funds, as many as 17 have given a weekly return in the range of 1.73-3.56 per cent. The NAV of the remaining five funds’ has appreciated by 0.1-0.98 per cent.

According to mutual fund (MF) sources, huge purchases of government papers by public sector banks flush with funds, sent the bond prices soaring. There has been a sharp decline in the yield for long-term government papers which has fallen by 15-20 paise and for short-term papers 20-25 paise.

"The banks with excess liquidity in the absence of a growth in credit-offtake are back in the buying mode as fears on the scale of the war declared by the US on terrorists started receding now. Another positive sign is that global crude prices started easing. These banks were earlier seen off-loading heavily on fears of breaking out a full-scale war. Also, in September, banks normally trade in their portfolio to do mark-to market," said a source at a leading MF.

The rally in the government papers is also fuelled by expectations of a CRR (cash reserve ratio) cut by the Reserve Bank of India which is to announce the credit policy in this month. The expectation gained further ground on Wednesday after the US Federal Reserve cut rates by 50 basis points on Tuesday. "The expectation of a softer interest rate regime is further building up as almost all the central banks in Europe and the Federal Reserve of the US had several rounds of rate cut. The rally in bonds was also backed by the hopes that the Fed may even go for one more rate cut in October which has now materialised," the source added.