Gilt Fund : A Necessary Asset Allocation Component
Gilt Funds are all season products. Especially for long term investors. More importantly, Gilt is a strong cover of value when credit risk perception rises. Thus portfolio value can be optimized by having right asset allocation. Take example of EPFO. Even for their HTM allocation, they tend to invest about 60% their allocation in Gilt assets. This they do so as to obtain around 6.7% plus yield for 30 yr with no credit risk to go. A rare opportunity in the world where yields in developed countries are tending to zero. Thus Gilt fund is a smart asset allocation call since it helps capture this high yield.
Thus, Gilt Fund is as critical to a debt allocation as Large/midcap/Smallcap fund is to equity investment component.
For that reason, Gilt fund be seen as a core part of stable portfolio solution rather than merely an opportunistic play.
Why to Invest in Kotak Gilt Fund:
Flight to safety - Gilt generally has Zero default risk. In crisis, Gilt demand increases as it is the asset of the ‘last resort’. Gilt protects value and hence attracts high flows in tough conditions.
High Liquidity - Secondary Gilt Market has daily trading liquidity of Rs 65 thousand cr and can handle high supply.
Performer in crisis - Depending on the market, Gilt funds are able to switch between carry, duration and blend strategy to generate performance. Thus, Gilt investments helps aggregate gains even in crisis time.
Dovish RBI Stance - Provides capital appreciation opportunity when RBI is easing rates & keeping liquidity high.
Structural changes - Index inclusion will bring in FII interest across the globe and may bring rates down. Similarly, higher domestic savings too may find way into Gilt.
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