Launched amidst falling interest rates in December 2000, Magnum Gilt-Long term Fund garnered an impressive Rs 239 crore. The fund's charter permits it to hold portfolio maturity beyond three years, but a surging corpus has been largely invested in the medium to short term government securities. In its 9-month tenure, the fund has made three quarterly payouts aggregating to 10 percent.
While government securities do not carry any credit risk, their high liquidity makes them susceptible to interest rate changes, especially for longer-maturity instruments. Magnum Gilt has been ultra cautious with its exposure to longer-dated sovereign bonds and even missed out the gains from two successive interest rate cuts in February 2001. However the fund smartly stretched itself beyond 9 years during May and June this year to trounce average monthly returns. On other occasions like a volatile March 2001, the fund's ultra short maturity of 1.78 years with a 50% cash holding against a category average of 5 years helped it notch up gains while others lost. In the recent volatility though, Magnum's shorter average maturity didn't come to its rescue - The fund ended September in the negative territory while the category posted marginal positive returns. Apart from a sharp fall in gilt prices across maturity, the fund was faced with redemption pressure.
Although interest rates have been on a constant decline for most part of its tenure, Magnum Gilt's (Long-Term) conservative stance has been baffling. For the six months ended October 14, 2001, the fund has delivered a return of only 8.86 per cent against the category average of 10.13 per cent. Investors looking for a cautious gilt fund manager would be better off investing in a short-term gilt fund.