I read an article on Business Standard that says Gilt funds may not be the best bet despite rate cuts. Should I redeem the units from Gilt funds because recently I invested in Kotak Gilt and IDFC Gilt Funds. I am a medium term investor.
- Prajeesh
Interest rates and bond prices are inversely related, hence, you will be better off investing in dynamic bond funds as gilt funds demand a certain timing of entry and a view on interest rate movements. Gilt schemes invest in government securities, which are very actively traded and reflect any change in interest rate outlook.
It is for this reason that funds in this category are more volatile than a diverse fixed income fund which invests in an array of fixed income instruments including government securities. On the other hand, dynamic bond funds can align with the change in situation and invest in short-term corporate bonds or government securities depending on the need of the hour.
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