On the face of it sure, that is general idea.
As they say, there is no free lunch, gilts have their own disadvantages, more so with such long term gilts. Read the article that I have given, and many more such exist in the blog, go through them and see if gilts suit you and if you have a place for them.
And Franklin was famous for giving returns more than their counterparts in the debt category, it was not just the credit risk that was of the concern, I think it was more about the inability to withdraw.
The articles on freefincal are definitely very informative, thanks for the links.
I will summarize my understanding, it may benefit some others also. I see broadly 3 types of Gilt mutual funds in the market:
-
Constant maturity gilt funds: These try to maintain a fixed maturity duration, typically 10 years. Hence, you are always subject to volatility due to interest rate changes. You need some expertise to navigate these.
-
Actively Managed Gilt funds: These are actively managed by the fund managers, and the maturity duration varies widely based on the calls taken by the fund managers. Here, you are trusting the expertise of the fund manager to take timely actions, and provide best returns. You still will be affected by the volatility due to interest rate changes, though it may be lower if the fund manager is any good.
-
Target maturity gilt funds: These funds have a fixed maturity date (not duration). With these, the fund value can vary in the short to medium term, but if you hold it till maturity, the returns are very predictable. In this sense, this is closest to an FD where you know the duration and return upfront, but the risk is lower since it consists of sovereign bonds. Also, if you hold for more than 3 years, effective tax is much lower too.
I personally am inclined towards gilt funds because I prefer absolute safety for my debt investments (for risk I already have equity investments!!). And within gilt funds, I prefer target maturity funds, because the other categories again carry a lot of interest rate risk.
For me, this is a more tax-efficient and safer debt investment than FDs.
3 Likes
Is there a good place where we can find a listing of all of them to buy?
That’s a good question. Interestingly, these are not listed in the Debt category for mutual funds, but rather in the Index/Other category. It took me some research to get to them.
I have created a page which lists all the target maturity gilt funds that I could find here Sandesh Goel: Target Maturity Gilt Funds.
Hope this helps you!!
3 Likes
Thanks for the webpage and effort. I believe SBI’s are missing from the page. Still, thanks for taking the time to do it.
