With a return since launch of 15.52%, K Gilt Serial 2007 has yielded returns, but without its share of volatility. Investor would do well to understand the product well, rather being swayed by these returns
15-May-2001 •Research Desk
K Gilt Serial 2007 is a special class within the category of gilt funds, which invests in instruments due for maturity in or before 2005. K Gilt Serial Plan 2007 is gilt fund. Gilt funds with their commitment to invest only in government securities are like sectoral funds in the debt category. 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 factor affecting the fund. 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 on till maturity.
K Gilt Serial 2007 has chosen to commit its investments to government instruments maturing only in year 2007. This dedication to a single maturity offers no room for active management and hence the fund is likely to be volatile if that maturity is out of favour. K Gilt serial 2007, with an average maturity at 5.97 years holds high maturity and has been highly volatile as the best and worst returns suggests. This volatility is likely to reduce as the fund gets closer to its maturity. However, if an investor were to hold on to the fund till maturity, he would face no price risk.
With a return since launch of 15.52%, K Gilt Serial 2007 has yielded returns. However, this has surely come with its share of volatility and with a fairly long time to maturity, this volatility is likely to continue. Investor would do well to understand the product well, see whether their needs align with its maturity in December 31, 2007 rather being swayed by these returns