Understanding the Impact of Rising Yields on Gilt Fund Returns
Is your gilt fund reflecting low returns? Understand how rising yields impact bond prices and gilt fund returns
Hindustan Times
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Over the past year, yields on 10-year Government Securities (G-secs) in India have increased from 6.20% to over 7%, leading to declining bond prices and lower returns for gilt fund investors. The average one-year returns for top gilt funds range from 0.50% to 3.25%, reflecting the adverse effects of rising yields.
- 01Gilt fund returns have decreased due to rising yields on G-secs.
- 02The average one-year returns for top gilt funds range from 0.50% to 3.25%.
- 03Rising yields lead to lower NAVs for gilt funds, impacting investor returns.
- 04Factors influencing G-sec yields include fiscal deficit concerns and geopolitical tensions.
- 05Future gilt fund performance will depend on G-sec yield trends and macroeconomic factors.
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In the past year, yields on 10-year Government Securities (G-secs) in India have risen from 6.20% to above 7%, negatively impacting gilt fund returns due to the inverse relationship between bond yields and prices. As yields increased, bond prices fell, leading to lower net asset values (NAVs) for gilt funds. Consequently, the one-year returns for leading gilt funds have been modest, ranging from 0.50% to 3.25%. For instance, ICICI Prudential Gilt Fund achieved a return of 3.22%, while several funds reported returns below 2%. The outlook for gilt funds depends on future G-sec yield movements, influenced by factors such as the US-Iran conflict, inflation rates, and fiscal policies. If conditions improve, including potential interest rate cuts by the Reserve Bank of India (RBI), gilt fund performance may enhance in the future.
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Investors holding gilt funds may experience lower returns, affecting their investment strategies. The decline in NAVs could lead to reduced confidence in gilt funds as a stable investment option.
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