With a one year return at 9.63%, Alliance GSF looks tempting for parking short-term surpluses. Look beyond the returns and see if you can weather short-term volatility that comes with these returns
18-Jun-2001 •Research Desk
Alliance GSF Short term , is a short-term fund with a difference. Its exclusive focus on Government Securities sets it apart from other debt oriented short term funds. This focus minimises the credit risk normally accompanying a debt fund, for it carries a sovereign backing. Also, it comes with an added advantage of liquidity with Gilts being actively traded.
This is not to say that these instruments do not carry any risk. Debt instruments are face interest rate risk - and gilts with their high liquidity are more susceptible to this risk. Bonds lose value with a hike in interest rates and gain value in times of a rate cut, with longer dated papers reacting more.
While the risk is minimised with a fund structured to focus on shorter maturity instruments, it has further an internal limit of 3 year for investments under this plan. Adhering to this limit in its investments Alliance GSF has been managed as a conservative fund with in its category. While the fund held a relatively longer maturity in the bull-run of 2000 in the bond markets at over 2 years, in the current bull run the fund has held a rather conservative maturity at less than 2 years.
With a one year return of 9.6354 % Alliance GSF is n average performer in its league. The conservative management notwithstanding, the fund has done better than you bank deposit. However, Gilts funds with their liquid portfolio carry some bit of volatility too. So don't enter these funds on the return parameter alone, and see if you can weather short-term volatility that accompanies.