Gilt funds see net inflows of Rs 1018 crore in October

According to Association of Mutual Funds of India ( AMFI), gilt funds as a category have seen net inflows of Rs 1018 crore in the month of October. In September gilt funds saw moderate inflows of Rs 39 crore. In first six months of the financial year 2012-2013, this category has seen net outflows of Rs 457 crore. However due to massive inflows in these funds in October, year to date net inflows now stand at Rs 560 crore. Total assets under management under 40 gilt funds stand at Rs 4393 crore, as on October 31, 2012.

"In the recent monetary policy, RBI has hinted towards a cut in interest rate early next calendar year. Gilt funds are a natural investment choice in a falling interest rate scenario," says Harshvardhan Roongta, CEO, Roongta Securities while explaining the recent inflows in gilt funds.

Gilt funds are good vehicles to play downward movement in interest rate cycle. Gilt funds invest in government securities that have little default risk. "If you are keen to trade, consider gilt funds for next two months. But if you are an investor, invest in gilt funds with a one year horizon," says Harshvardhan Roongta.

Though there is no default risk, a gilt fund investor faces is the interest rate risk, wherein a fund may offer losses if the yields move up drastically in short term.