Chola Gilt Savings, seeks to invest in short to medium-term maturity Gilts, with the average maturity of the portfolio not exceeding 3 years.
While, 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. While a rise in interest rates would result in a fall in the prices of debt instruments, with longer-dated instruments witnessing the maximum fall, within the different debt instruments of same maturity, Gilts are the most impacted.
Chola Gilt Savings is a steady performer with very low volatility imparted by its risk cautious strategy. While, the fund has the mandate to stretch its portfolio maturity upto 3 years, it has so far stuck to a tenure of below 6 months in an attempt to contain the interest rate risk. This has resulted in the fund being sidelined in the rally in the Debt markets since the month of November 2000. While the average return in the category for the seven months was 6.74%, the fund was a below average performer with a gain of 5.60%. However, the risk-averse strategy benefitted the fund in its own way. The fund during the interest rate hike in July 2000, was one of the very few funds that managed to post a comfortable 0.60% as against negative returns by its peers.
Chola Gilt Savings has in the one year period till June 15, 2001 returned 9.7119% as against an average 10.7670% by the category. Nevertheless, investors looking for parking their short-term surpluses for a tenure between 6 months to a year, can invest in the fund for it is attractive for its low volatility, given that gilts are the most volatile debt instruments. At the same time the fund can be expected to yield higher returns than your bank deposit.