What are the attractions of investing in GILT Fund

- Safest available form of Debt in terms of default risk since backed by the government
- GILTS should be a part of every Investment Portfolio, that aims to produce a superior medium to
longer term return than Cash / FDs, without the volatility of equities

How your Gilt Fund has performed in the last one and three years?
Performance (for FY10)
1 year 6.55%
3 years 4.79%

What are the expenses and hidden costs if any in investing in a Gilt Funf?
The expense ratio charged by our gilt fund is 1%
There is an Exit Load of 0.25% charged if redeemed before one month
There are no hidden costs in investing in a gilt fund as SEBI guidelines do not permit it.
How do you allocate the fund money and how is it monitored?
As per the offer document the fund aims to invest 80% 100% in Government Securities & would
maintain an average maturity of the portfolio not more than 12 years. Monitoring of the investments is
done on a daily basis by the fund manager and the compliance team.
Which fund is better out of Liquid Fund, Debt Fund and Gilt Fund for an ordinary investor?
The investor should choose from the above depending upon his/her risk appetite & tenor of investment.
Liquid fund should be selected as a very short term investment & by someone with very low risk
appetite. Likewise various Debt funds with varying maturity profiles could be selected by the investor
depending upon his/her individual needs. GILT funds should be selected for a medium to long term
investment. Returns could be volatile depending on the movement of interest rates, however in general
gilt funds endeavor to give superior returns as compared to liquid and ultra short term funds.
What are your selection criteria for choosing the securities to invest in?
The securities are selected depending on the fund managers view on interest rates. For example if the
fund manager is of the view that interest rates would come down he would maintain a high duration by
buying into longer dated securities & vice versa. The fund manager restricts to the liquid securities since
actively managing the portfolio duration is of utmost important especially in times of volatility.



What precaution an investor should take in selecting the Best Gilt Fund?
- Expense ratio
- Load charges and load period
- Past Performance (though not an indicator for future performance)
- Fund size (at times a very large fund would be a disadvantage in case of extreme volatility)

How investing in GILT Fund is a better investment than investing in Fixed Deposits?
FD is for an investor with low risk appetite and who wants a stable fixed return. In a gilt fund one could
generate higher than FD returns but there is an element of risk due to movement in interest rates in the
market. Redemption from a GILT fund after a certain period (in our case one month) would not attract
any exit load thus the investor has the option of redeeming the money without any additional charges
unlike an FD where there could be a penalty for premature withdrawal.
FD as per current income tax rules is subject to a tax as per the applicable income tax bracket. However
any gains from a gilt fund is considered as capital gains and hence taxed at a lower rate.
Investment in an FD does involve an element of credit risk as one relies on the ability of the bank to
repay the FD as per schedule.

What major events affect the gilt funds performance in a big way?
- RBI monetary policy
- Supply / Maturity of government debt
- Inflation & Inflationary expectations
- Economic growth outlook
- Deposit Growth/Credit growth
- Global bond yields
When is the right time to buy a GILT Fund
There is no thumb rule with regards to the timing for investing in gilt funds. One has to consider overall
economic outlook, inflation expectations etc before investing in these funds. Keeping in mind the
current situation even though we are seeing strong domestic growth, globally one is witnessing slow
economic growth. We dont expect any major movements in interest rates with government bond
expected to trade in a certain range in the near term. It would depend on the fund manager to
aggressively manage duration and try & generate capital gains. We expect the 10 year government of
India bond to trade in the range 7.50% 7.90% in the near term and would recommend investing in gilt
funds when the 10 year is in the range of 7.80% 7.90%.

What is the turnover Ratio of investments in your GILT Fund for 2009-10?
99.78
How fall in Interest rates provides a good return to Gilt Fund investors?
Interest rates are inversely related to the price of debt securities. Thus when interest rates fall along
with the coupon flows the investor also benefits from capital appreciation due to rise in prices. The
longer the duration of the security / portfolio higher will be the capital appreciation and vice versa.
What is your forecast on inflation and interest rates?
Robust economic growth is enhancing employment and business opportunities in India thus increasing
income levels translating into higher demand for goods & services. Food Inflation has been very sticky
though recent data suggest higher inflation spreading to other sectors as well. The RBI is also concerned
about inflation thus reacted by increasing its Repo Reverse Repo by 25 bps before its policy review on
27
th
July 2010. We could see food inflation coming down to a certain extent if we have a good monsoon
season. Overall inflation could start coming down October 2010 onwards mainly on account of base
effect.
On the interest rate front we expect RBI to raise rates by another 25 bps in its worth coming monetary
policy. We do not expect the RBI to raise rates aggressively keeping in mind slowdown in major global
economies. We expect the 10 year government of India bond to trade in the range 7.50% 7.90% in the
near term.