UTI Gilt Fund with 10-year Constant Duration is an open-ended debt scheme that invests predominantly in government securities issued by central and state governments. The weighted average portfolio maturity will be maintained at around ten years. A reader wants to know if this is the right time to buy such a product. Also, The fund is being marketed as an attractive investment opportunity. Is really the case?
Theoretically, it seems like a sound idea. Interest rates have just started to increase. Bond yields are high. This means the market price of existing long term bonds are low. When the rates start to fall again, the prices will move up, and the NAV of gilt funds will shoot up.
Practically, there are many uncertainties. If the rates continue to increase, a fund like UTI Gilt Fund with a 10-year Constant Duration will continue to bleed. If the rates do not increase for a while, then the NAV will move up or down much. If the rates are lowered, the expected gain may not be as imagined.
Unlike a normal gilt fund that behaves like a dynamic bond fund and freely changes the portfolio average maturity, this new offering is constrained to keep the value close to 10 years.This means the portfolio will always have long-term to very long-term bonds. The NAV of such a fund will be the most volatile among all debt funds.
Gilt Funds with a 10-year Constant Duration are suitable only for experienced debt mutual fund investors who do not mind waiting for months or even years for NAV recovery and can withstand sharp falls, even a crash! In July 2013, when the Rupee was weak, RBI aggressively hiked the repo rate leading to a crash in the bond market. If such an event recurs, such a fund will not only be hit the hardest but will also take the longest to recover.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥 🔥
To appreciate how much returns can fluctuate, see Gilt mutual funds will not protect your money! Recognize risks before investing!
The primary advantage of such funds is fund management risk associated with duration play is lower than gilt funds. That is, in a normal gilt, the fund has the freedom to change bond tenure, as mentioned above. This may or may not result in higher returns. At times, their calls can go wrong. This risk is lower in a constant duration fund (but not eliminated).
For investors who can stomach associated risks, we recommend two ways to use UTI Gilt Fund with a 10-year Constant Duration (or similar funds)
- Use for very long term goals along with equity and debt instruments. Regular rebalancing is essential. Experienced investors with a large corpus can afford to hold such funds even after retirement. The risk here is that one has to endure poor sequences of returns that may last months or even years. We prefer this method.
- Investors who prefer less volatile debt funds may consider gilt funds or corporate bond funds for long-term goals. See:What debt fund should I add to a long term investment portfolio?
- Buy and sell tactically with a proper qualitative (macro-economic indicator-based) or quantitative strategy. This may backfire at times. We have backtested a quantitative strategy and created a double-moving average tool. The latest backtest results are here: Is it possible to time entry and exit from gilt mutual funds for better returns?Caution: No strategy will work all the time.
Resources:
- For an overview of the basis, see FAQ on gilt mutual funds: essentials investors should know.
- For some assistance on selecting gilt funds, see: How to choose a gilt mutual fund
In summary, UTI Gilt Fund with a 10-year Constant Duration is only suitable for experienced investors. Theoretical investment opportunities may not pan out to be so in reality because there are too many uncertainties at play. Such funds may be suitable for long-term goals but can be highly volatile.
Do share this article with your friends using the buttons below.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool!=> Track your mutual funds and stock investments with this Google Sheet!
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth!
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter with the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr. M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter, Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Most investor problems can be traced to a lack of informed decision-making. Wehave all made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about?As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it and teach him several key ideas of decision-making and money management is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want 
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)
