Gilt funds tend to be the most sensitive to interest rate changes
09-Dec-2016 •Research Desk
I observe that long term gilt funds are performing much better than short term debt funds. As the interest rates will come down soon, is it good to invest in gilt funds?
Gilt funds invest in government securities. They usually have long maturity profiles which make them extremely sensitive to interest rate changes. When interest rates go down, they benefit the most and vice-versa. Given that there are widespread expectations for the interest rates to fall in the coming quarters, you may be tempted to invest in gilt funds. But remember, you would need to move out before the rate reversal. If you are comfortable tracking and analysing the trajectory of interest rates, you can consider investing in gilt funds opportunistically. For most other retail investors who find it too difficult, other types of debt funds are a better option.