2009 Turned Out To Be Worst for Gilts Funds

2009 turned out to be a worst for gilt funds


2009 turned out to be one of the worst for gilt funds, which offered the best returns to investors in a gloomy and uncertain 2008.


On the other hand, 2009 proved to be a good year for diversified equity mutual funds (MFs).


Most gilt funds gave more than 20% growth in 2008 with the best one topping the performance chart with a 44.8% increase in a year which saw equity funds post 34.2% to 80.4% losses.


While diversified equity funds are back on top this year, gilt funds have slipped considerably due to the sharp rise in yields on government securities (G-Secs).


The yield on the 10-year government bond has moved up by about 2.5% in 2009 bringing down bond prices.


Prices of the 6.05% 10-year government bond issued in February 2009 is about Rs 11 lower than its opening price.


Bond prices and bond yields are inversely related.

Rising yields have pushed down bond prices affecting the performance of gilt funds, which invest primarily in G-Secs.


Only seven out of the 40-odd medium-term and long-term gilt funds have shown growth in 2009 while the 15-odd short-term gilt funds have shown only a marginal increase.


While the market was expecting net government borrowings at Rs 1.1 lakh crore, it came at over Rs 3 lakh crore.

The gross borrowings for financial 2010 would be around Rs 4.51 lakh crore.


One response to this post.

  1. Good points, I think I will definitely subscribe! I’ll go and read some more! What do you see the future of this being?


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