Best gilt mutual funds to invest in 2019

Gilt mutual funds are considered ideal for long-term debt mutual fund investors with an aggressive risk profile

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Here is an update on our recommended gilt mutual fund schemes for October. The good news is that there are no changes to the list. All the schemes that were part of our recommendation list managed to retain their spot. The gilt mutual fund category is among the toppers in the return chart offering 12.75 per cent returns in one year.

Gilt mutual funds are considered ideal for long-term debt mutual fund investors with an aggressive risk profile. However, these schemes are extremely sensitive to interest rate environment. They give high double-digit returns during soft interest rate scenario. Currently, the category is offering very high returns as there are widespread expectations of a further rate cuts by the Reserve Bank of India.

  • 9.44%Annualized Return for 3 year
  • >5 years Suggested Investment Horizon
  • 9.2 YearsTime taken to double money
  • 2.05%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 9.5 YearsTime taken to double money
However, these schemes also suffer the most when the interest rates start hardening. They can even offer negative returns in a higher interest rate environment.

That is why many mutual fund advisors believe that it is extremely important to get in and out of these schemes at the right time. Simply put, investors can make very high returns if they can get into these schemes just when the rates start falling. They also should get out just before the rates start hardening to avoid big losses.

Many investors would find the task extremely difficult, say mutual fund advisors. That is the reason why they do not recommend gilt schemes to regular investors. Instead, they ask these investors to recommend dynamic bond funds.

Dynamic bond funds invest across securities and maturities based on the view of the fund manager. That means the fund manager will take a call and invest or sell debt securities based on his view of economy and interest rate scenario. Best Dynamic Bond Funds to invest in 2019

In short, if you have a long term investment horizon and a stomach for volatility, you can invest in gilt schemes to earn higher returns. However, you should remember that these schemes might go through a bad phase whenever the interest rates start going up. If you want to take some risk and earn extra returns in these schemes, here are five gilt schemes that you may consider investing.

Reliance Gilt Securities Fund
UTI Gilt Fund
ICICI Prudential Gilt Fund
SBI Magnum Gilt Fund
Aditya Birla Sun Life Government Securities Fund

Methodology: Mutual Funds has employed the following parameters for shortlisting the debt mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i)When H is equal to 0.5, the series of return is said to be a geometric Brownian time series. These type of time series is difficult to forecast.
ii)When H is less than 0.5, the series is said to be mean reverting.
iii)When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.
Asset size: For Debt funds, the threshold asset size is Rs 50 crore.

(Disclaimer: past performance is no guarantee for future performance.)

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