Gilt Funds outshine across Mutual Fund categories

Gilt funds returned 3.1% over the quarter, outperforming both equity and other debt oriented categories. This was mainly on account of the softening of yields on the back of the Reserve Bank of India (RBI) reducing the repo rate by 50 basis points (bps) to 8 per cent in its Annual Monetary Policy for 2012-13 in April 2012. Bond yields and prices move in opposite directions, i.e., when yields fall, prices/ NAVs (of bond funds) rise and vice versa. On the other hand, equity funds returned 1.39% during the quarter vis-a-vis 1.93% by the S&P CNX Nifty and 1.12% by the S&P CNX 500 Equity Index.

Check out the performance of Gilt Funds

The higher returns from gilt funds failed to translate into increase in AUM for the category. For the quarter ended June 2012, the average AUM of gilt funds analyzed fell by 13% to Rs 25.74 billion vis-à-vis Rs.29.68 billion in the previous quarter. This was primarily because investors were uncertain about the pace at which the central bank would reduce interest rates. Post the repo rate reduction in April, the RBI retained key policy rates at its mid-quarter policy review in June, giving priority to inflation over growth. Thus, even though gilt funds outperformed other categories, investor interest in this category was muted. Majority of investor interest was towards the income funds (especially dynamically managed bond funds), which witnessed a growth of 33% in AUM for the June quarter to Rs.104.46 billion from Rs.78.12 billion. This category returned 2.66% during the period under review.

At the fund house level, HDFC Mutual Fund continued to lead the tally of top ranked funds for the quarter ended June 2012 with 12 funds under CRISIL Fund Rank 1 (same as in the previous quarter). This was followed byUTI Mutual Fund with 9 top ranked funds (5 in the previous quarter), ICICI Prudential Mutual Fund with 7 funds (3 in the previous quarter) and SBI Mutual Fund with 6 funds (7 in the previous quarter).