Gilt edged mutual funds

type of mutual funds

1. GILT-EDGED FUNDS Sunitha Presented by:

2. Mutual Funds: An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities. A mutual fund's portfolio is structured and maintained to match the investment objectives.

3. Mutual funds mechanism:

4. GILT-EDGED FUNDS: Gilts originated in Britain. Gilt-edged Funds are mutual funds that invest only in government securities. They are preferred by risk averse and conservative investors who wish to invest in the shadow of secure government bonds.

5. These funds invest in Gilt-edged securities : state and central government Bonds, T-bills. Have different maturity profiles-short term medium term or long term. Gilt funds differ from bond funds because bond funds invest in corporate bonds, government securities, and money market instruments. Gilt funds stick to high quality-low risk debt, mainly government securities.

6. Risks involved ? Major risks in any debt instrument investment: Credit risk Liquidity risk Interest rate risk As gilt funds invest only in G-sec Credit risk is near to zero. Gilts are highly liquid in nature and Gilt funds being the mutual fund are liquid. Hence low liquidity risk . The biggest risk involved in Gilt funds is Interest Rate Risk

7. Interest Rate Risk: Here “ Price of the bond and interest rates are inversely related”. When interest rate rises , bond prices fall or vice versa. Bonds prices and gilt fund unit prices tend to fall in rising interest rate scenario. Fall in interest rates leads to rise in bond prices.

8. Who should invest in Gilt funds? These are ideal for those who want safety for their investments or are risk-averse and, at the same time, are looking for reasonable returns on their money. When should you invest in gilt edged funds? These are a good option when the RBI is not likely to raise interest rates immediately. situation when interest rates have peaked and a downturn seems imminent, would be an opportunity time to invest in gilt funds.

9. Advantages of Gilt funds: Less credit risk: as they are government securities. Tax benefits Open to retail investors: through these funds if not only large institutional investors invest in G-sec market. Diversification of portfolio Guaranteed returns- safe investments

10. Disadvantages of Gilt funds: Interest rate risk Not frequently traded Mostly ideal for short-term investment

11. Gilt-Edged Switching: Gilt-edge switching involves selling of one bond at a discount in order to purchase a more favorably yielding instrument. Higher yeild bonds may increase the potential for profits.

12. Gilt funds in India: The first gilt fund in India was setup in December 1998. The Reserve Bank of India is the governing body of all gilt funds ever since. The RBI provides various facilities to encourage gilt funds and to create a broader Investor base for government securities: Liquidity support SGL and current accounts Funds transfer facility Access to call market Ready forward transactions

13. Major players: SBI Magnum Gilt - LTP HDFC Gilt Fund- LTP ICICI Pru Long Term Gilt JPMorgan India G-Sec. Fund -RP Reliance Gilt Sec. - RP Kotak Gilt Invt - Regular Birla Sun Life GSec - LTF

14. Example: SBI Magnum Gilt - LTP

15. SBI Magnum Gilt - LTP (G) Overview: Very Good performer in the category The scheme is ranked one in Gilt long term category by CRISIL (for quarter ended Mar 2015) rank unchanged from last quarter. Investment Objective : To provide the investors with returns generated through investments in government securities issued by the Central Government and / or a State Government. Scheme details : Fund Type - Open-Ended Investment Plan - Growth Launch date - Jan 01, 2001 Asset Size - Rs 422.63 crores (Avg. for qtr Jan-Mar 2015) Minimum Investment - Rs.5000 Fund Manager - Dinesh Ahuja

16. Asset Allocation of SBI Gilt-Magnum Fund: (as of 06/30/2015) Cash - 2.40% Stock - 0.00% Bond –97.60% Others - 0.00%

17. CONCLUSION : Investing in gilt funds though offer safe investment option to derive maximum satisfaction from investment factors like: timing, risk taking ability, fund’s track record and other factors have to be considered before investment.

18. References: www.moneycontrol.com www.amfiindia.com www.rbi.gov.org Financial Services-Text by Shashi. K. Gupta

19. Thank you!