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Guilty Gilts

After having a fabulous 2001, Gilt funds are struggling to generate even decent return. NAV of three of the four newly launched Gilt Funds are hovering below par. And worse, one of them has decided against the payment of dividend.

What we are about to tell may see some investors break into cold sweat. Especially those who thought they had made a safe bet by investing in gilt funds. Hold your breath we are not talking about the entire gilt fund family but those launched in March this year. For gilts in general it has been a fall from grace especially after churning in a breathtaking performance last year, delivering a mammoth 25.46% return. After being top performers last year, gilt funds are struggling hard to generate even decent returns. Case in point: the NAV of three of the four long-term gilt funds -- Grindlays GSF-Investment Plan, BOB Gilt Fund and First India Gilt Fund -- launched between February and March this year are ruling below par. The lone survivor is ING Gilt Portfolio -- its NAV is shade above Rs 10.

To add salt to injury, Grindlays GSF-Investment Plan has decided not to pay its first quarterly dividend, due in June 2002. The reason: the fund's NAV, as on June 5, 2002, is hovering around Rs 9.86. According to SEBI guidelines, mutual funds must declare a dividend out of realised gains only. In other words, if you had invested, say, Rs 10,000 in this fund at the time of launch, the value of your investments today would be Rs 9,862.70 – a setback of Rs 137.30.

Let's now see how the four funds stack up against each other. Of these, Grindlays GSF accounts for the largest asset base: Rs 54.48 crore as on May 31, 2002.



How They Fare
  Scheme  Launch Date  NAV*  1-month Return*  Net Assets
  First India Gilt Fund Feb-02 9.66 -3.01 4.78 (31/03/02)
  Grindlays GSF – Investment Plan Mar-02 9.86 -2.01 54.48 (31/05/02)
  BOB Gilt Fund  Mar-02 9.92 -1.05 n.a.
  ING Gilt Portfolio Feb-02 10.17 0.39 0.22 (31/05/02)
"* as on June 05, 2002"

   

Initially, these funds did see an appreciation in its NAV. However, the central bank's decision to hold back bank rate cut saw gilts start their downward journey. Just when gilts were about to make a recovery, the Home Trade-co-operative banks scam happened. And then the Jammu attacks in middle May. The result: gilt prices fell further. As a result, the most actively traded government security 11.5% 2011 lost Rs 1.96 in May. And the longer-tenure paper 9.85% 2015 GOI saw a sharp fall of Rs 4.69 during the same period. However, it is difficult to comment on the variation in returns due to non-disclosure of portfolios by these funds, except for Grindlays GSF. As on May 31, 2002, 46.28% of its assets were parked in GOI 11.5% 2011 (Rs 25 crore). This fund has an average maturity of 8 years. In comparison, GIC Gilt, which was launched in April, has managed to do better than the above-mentioned three funds. Its NAV currently stands at Rs 10.09.

Blame it on timing or whatever, the gilt funds are in for a hard time. But we could see a reversal in fortunes. How you would say? That's because if a cut in bank rate takes place, gilt prices could move up. And so would these funds. The current dip in price (although the gilts prices moved up towards end-May on the back of receding war fears) is a short-term phenomenon and isn't likely to sustain for long. So, we suggest you stay invested.