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Templeton India GSF

With a 17.79 per cent annualised total return since launch, Templeton India GSF looks impressive. But this has been turned in with the typical volatility embedded in a Gilt fund

By virtue of its investments in government bonds, Templeton India Government Securities Fund offers a quality portfolio. However, it also makes TIGSF highly sensitive to interest rates and places it in the high-risk, high return bracket in the bond league. The quarterly dividend plan of the fund has paid consistent dividends -- 7 in all aggregating 17.25%, since launch in June '99.

TIGSF is an open-ended fund dedicated to investments in Government Securities or Gilts. These sovereign securities offer a credit-risk free portfolio, as they are backed by the Government. The fund has held on to a diversified portfolio of Gilts, across varying maturity.

However, being highly liquid, the prices of these instruments sharply reflect any volatility in bond markets. Bonds gain value when interest rates soften and lose value when interest rates rise and the longer dated instruments being more affected. With the fund holding a mandate to invest in longer dated papers, the only way investors can tide over this is by investing for the longer haul.

The fund on its part, has handled this interest rate risk, by re-aligning portfolio maturity in line with interest rate outlook leveraging the portfolio liquidity. While the fund held its portfolio maturity at a conservative 4.08 years in September'00, it has today stretched it to 10.5 years to capture the gains of the current rally.

With its active management the fund has consistently outperformed its category, to post a return of 17.79 per cent since launch. However, the impressive performance is on the back of a not a very smoothly rising performance graph. The best and worst performance also reveals that. But a longer investment horizon can help you tide over these gyrations.