Dundee Sovereign Trust is an debt fund dedicated to investments in Government Securities. With minimum investment of Rs 5000, investors can enter and exit the fund on a no load basis. The fund is an approved security for Non - Government Provident Fund, Gratuity and Superannuation funds.
With its investments tied to Government Securities or Gilts, the fund has committed to quality. Gilts with their sovereign backing carry minimal risks with them. However, even as the credit quality is impeccable, the fund earns a lower coupon for buying in to impeccable quality.
The fund however tries try to pep up returns by managing interest rate risk instead. With bond prices moving inversely with interest rate outlook, longer dated instruments are more sensitive to these changes. Being the most actively traded instruments, this sensitivity is more pronounced in Gilts and thus calls for swift management.
The fund has sought to manage interest risk by realigning portfolio maturity with change in outlook. For instance in the volatile times of mid 2000, when rates were climbing up, the fund sought to hedge against any losses by being entirely in cash. With the interest rates easing since the fund has sought to capture the gains of the rally, by stretching the portfolio maturity. It small size at around Rs 11 crores has amply aided the fund in effecting changes in the portfolio.
Even as the fund continues to hold a rather small asset base, with its proactive management, the fund has yielded above average returns at 15.42% since launch.