The spread between Corporate Bonds and G-Secs has widened over the last two quarters, and expect the spread to come down due to improved liquidity conditions.There may be fluctuations in the shorter term but over the long term of around 18-24 months, expect downward interest rate movements to give better returns.
Income Funds: Income funds have a mixed portfolio of G-Secs & Corporate Bonds. They have a higher portfolio maturity profile than liquid or short-term funds. They generally have an exit load if redeemed before a specified period.
Suitability:
• It is suitable for investors with an investment horizon of 18 months & above.
• These funds aim to generate regular income with some capital appreciation also.
• The higher maturity profile make these funds more volatile in the shorter term due to interest movements.
Gilt Funds: only invests in Govt. Securities of various maturities. The aim of these funds is to generate credit risk free return. These are most volatile funds in the debt category as G-Secs are the most actively traded securities.
Suitability:
• It is suitable for investors with long-term investment horizon of over 18months.
• In a falling interest rate scenario they generally have a higher return potential than in a rising interest rate market.
Investing in a combination of Income funds and Gilt (Long Term) Funds would be a better option at this point of time to take advantage of this scenario.
