Best gilt mutual funds to invest in 2020

The average one-year return offered by the category is 10.68%. Top 17 gilt schemes have managed to offer more than 10% in the last year.

Here is an update on our recommended gilt mutual funds for this month. There are no changes in the list in October. If you are investing in these schemes, you may continue to do so. If you are planning to invest in gilt schemes, you may choose schemes from the list. However, read the rest of the article before taking a final decision.

Before proceeding further, an update on the performance of one of the schemes in the recommendation list: ICICI Prudential Gilt Fund. The scheme has been in the third quartile in the last three months.

  • 8.7%Annualized Return for 3 year
  • >5 years Suggested Investment Horizon
  • 8.5 YearsTime taken to double money
  • 9.2%Annualized Return for 3 year
  • >5 years Suggested Investment Horizon
  • 9.2 YearsTime taken to double money
Gilt mutual funds have been enjoying their spot under the sun due to a series of rate cuts by the Reserve Bank of India. The category has been mostly offering double-digit average returns. The average one-year return offered by the category is 10.68%. Top 17 gilt schemes have managed to offer more than 10% in the last year.

However, do not rush to invest in these schemes simply because of the higher returns. Gilt mutual fund category has some unique features. It is extremely important to understand them before investing in the category.

To begin with, gilt mutual funds invest mostly in government securities. Due to this, these schemes have almost zero default risk. However, they have very high interest rate risk. The gilt mutual fund category is extremely sensitive to interest rate environment. They give double-digit returns during soft interest rate scenario like the current one.

However, these schemes suffer the most when the rates start hardening. They may offer negative returns in such periods. This aspect is extremely crucial at a time when the RBI held rates in its last policy review.

This is the reason why gilt mutual funds are recommended only to long-term debt mutual fund investors with an aggressive risk profile. 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 regular investor find it very hard to execute. That is why most mutual fund advisors ask investors to stick to short-term debt mutual funds like liquid funds, ultra short duration, short duration, and so on.

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.

Best gilt mutual funds to invest in 2020
  • Nippon India Gilt Securities Fund
  • UTI Gilt Fund
  • ICICI Prudential Gilt Fund
  • SBI Magnum Gilt Fund
  • Aditya Birla Sun Life Government Securities Fund

ADVERTISEMENT 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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