Morgan Stanley mutual fund launches Morgan Stanley gilt fund

MUMBAI: Morgan Stanley Mutual Fund has launched Morgan Stanley Gilt fund, an open ended debt scheme that invests in government securities. The objective of the scheme is to generate income and capital appreciation by investing predominantly in sovereign securities issued by the Central Government and by State Governments or repos/ reverse repos in such securities.

The fund offers growth and dividend option. You need minimum Rs 5000 to invest in this fund. There is no entry or exit load for investors in the scheme. The new fund offer closes on February 25.

"One can expect a drop of 50-75 basis points in interest rates in this year. Gilt funds are best positioned to take an advantage of falling interest rates and one can expect a 9-10% return from such funds over the next one year," says Deepak Panjwani, Head (Debt Markets), GEPL Capital. When interest rates fall, prices of government bonds move up.

That means there is a possibility of a capital appreciation in a falling interest rates scenario. Also, government bonds carry little default risk. As per Value Research, in the last one-year-ended February 13, medium and long term gilt funds as a category has given 10.29% returns.

Why invest: You can exploit a fall in interest rates without taking credit risk.

Why not invest: There are other open ended gilt funds with a long term track record.