Few months back, I invested in ICICI Prudential Gilt Fund since the fund had put in a very good performance till recently. But now, I see that the fund's return has turned negative. But I understand that gilt funds can give negative returns as well. If I decide to exit from my gilt fund, then I will have to pay the exit load. Is it still a good idea to switch my money from this gilt fund and invest it in some Income fund?
- Rajesh Gandhi
This situation is a reminder of the statutory warning - Past performance may or may not be sustained in the future. Also, this is not a time when the fixed-income market is operating normally and hence, is very volatile. The outlook remains bright but it will continue to remain volatile for some time. So, one must be prepared for any turbulence that may occur in the gilt funds segment.
You can hold on to your gilt fund. A holding period of about a year should yield decent returns. But an income fund will be a better way to capitalise on the softening interest rates as they have the flexibility to switch between corporate bonds and gilts. Not only would they benefit from lower interest rates, but would also gain from the shrinking spread between corporate bond and the gilt.
This article was originally published on March 23, 2009.
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