Zurich India Sovereign Gilt Investment has been a below average performer having failed to align the portfolio maturity in line with the interest rate outlook
23-Jul-2001 •Research Desk
Zurich India Sovereign Gilt Investment is a medium-term Gilt fund seeking to invest 30 per cent in securities with the balance maturity of less than one year, 50 per cent in 1 to 5 years and the rest in maturities more than 5 years.
Though, Gilts are free of any credit risk and hence free of liquidity risk as well, they are the most sensitive to changes in interest rate outlook. Further, the interest rate risk increases with the maturity of the debt instrument. Thus, while during an interest rate fall the price of a long-tenure Gilt instrument will see a sharp spike, rise in the interest rate will bring down the price much more than in shorter maturity instruments.
Zurich India Sovereign Gilt Investment has since its launch in February 2000 yielded an annualised return of 13.39%. Over the one-year ending July 20, 2001, the gains in the fund have been 15.61% as against the category average of 18.83%. While the fund started off with a corpus of 19 crores, it came under heavy redemption pressure in the subsequent months which also coincided with the period when interest rates came under pressure. That coupled with the fund's investments in longer-dated instruments saw the fund end up in the negative territory for three months consecutively. Going further, when the sentiments turned favourable, the fund failed to make the best of the rally with predominant investments in medium-term papers while its peers stayed invested in the far-end. As on May 2001, the fund had an average maturity of 4.40 years as against an average maturity tenure of 7.61 years of funds in its category.
Zurich India Sovereign Gilt Investment has been a below average performer having failed to align the portfolio maturity in line with the interest rate outlook.