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K Gilt Serial Plan 2005

While the returns look pallid at 8.11% that is out of its unique background. However, given the plans term to maturity, it is likely to be volatile

K Gilt Serial 2005 is a special class within the category of gilt funds, which invests in instruments due for maturity in or before 2005. Serial Plan 2005, a gilt fund commits its investment to government securities. Government securities with their sovereign backing carry minimal credit risk. Also, with their extremely high liquidity, they offer high trading profits.

Interest rate sensitivity is the other component of bond performance. As interest rates move down, bonds gain value and vice versa. With the liquidity of the gilt instruments adding to this sensitivity, it calls for active management to curtail this risk. Serial Plans however, commit their investments to a single maturity and hence offer little room for active management. The only way investors can avoid this price risk by holding fund till maturity.

Serial 2005 has chosen to commit its investments to instruments maturing only in year 2005. This dedication to a single maturity offers no room for active management and hence the fund is likely to be volatile if that particular maturity is out of market favour. K Gilt serial 2005, with an average maturity at 4.28 falls at the higher end of the maturity spectrum. However, the volatility is likely to reduce as the fund gets closer to its maturity. However, if an investor were to hold on till maturity, he would face no price risk. The return since launch of 8.11% is not a fair reflection of its performance as investments in to the fund came in July 200. From there on a return of 12.61% does reflect the performance better. With its current term to maturity on December 31, 2005 falling in the higher end of the risk matrix, the fund is likely to be volatile.