Gilt funds outperform other debt MFs as interest rates fall

MUMBAI: Gilt funds delivered the highest returns among debt-oriented categories in the quarter ended December 31, 2014, according to Crisil Mutual Fund Ranking.

The category, represented by Crisil-Amfi Gilt Fund Performance Index, delivered absolute returns of 7.70 per cent for the quarter compared with Crisil Gilt Index's 6.73 per cent, a Crisil statement said.

Bond prices and yields move in opposite directions. A fall in interest rate benefits long-term debt oriented funds.

Over the past one year, yields on the benchmark 10- year government security have fallen nearly 100 basis points (bps) to 7.85 per cent from 8.82 per cent. a chunk of that fall -- of 66 bps - happened in the past three months.

In the past one year, the average maturity of gilt- category holdings rose to 16.96 years from 12.09 years, with 16.40 per cent returns, marginally lower than the benchmark Crisil Gilt Index's 16.52 per cent, the statement said.

Across debt categories, funds with longer maturity fared better than peers.