This article shows the historical performance of this fund as an example of a long-running gilt fund to demonstrate the risk and return in a gilt fund.

📚 Table of Contents

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• About Kotak Gilt Fund
  • Scheme details
  • Scheme returns
  • Scheme risk and potential risk matrix
• Our analysis of Kotak Gilt Fund
  • Rolling lump-sum returns of Kotak Gilt Fund
  • Rolling lump sum returns and their distribution
  • Rolling fixed SIP return distribution
  • Rolling 10% per year top-up SIP return distribution
• What should investors do with this fund?

Kotak Gilt Fund is a gilt fund. Please read our primer on gilt funds here before proceeding: Gilt funds do not always go up in value. Should you invest in gilt funds?

About Kotak Gilt Fund

Data for this section is from the website of Kotak Gilt Fund as on 19-May-2023. The link is here.

Scheme details

This fund invests primarily in long-term gilts issued by the Central government and has existed since 1998. The fund is benchmarked against the Nifty All-Duration G-Sec index.

Scheme returns

Investors should note that the fund has beaten the benchmark for the direct plan. In contrast, the regular plan (performance figures here) has not due to the extra 1% TER.

Scheme risk and potential risk matrix

As per the Potential Risk Class (PRC), this section shows that the fund has considerable interest rate risk, which we will explore next. Read more on PRC here: How to use the SEBI Potential Risk Class matrix to understand risk in debt mutual funds?

Our analysis of Kotak Gilt Fund

Data for this section is from the AMFI website for Kotak Gilt Fund as on 19-May-2023.

Rolling lump-sum returns of Kotak Gilt Fund

We calculate rolling returns for multiple holding periods to see the maximum and minimum returns over different holding periods.

Short-term Rolling returns

Medium-term Rolling returns

Long-term Rolling returns

As the charts show, beyond a 2-year holding period, a one-time investment in this fund has yet to lose money.

Rolling lump sum returns and their distribution

We combine all the different holding periods and check the average, maximum, minimum and dispersion (measured via standard deviation). We see that as the holding period increases:

• the minimum return increases
• the variability of returns reduces
• the gap between maximum and minimum returns reduces

We have also counted the cases where the fund has beaten inflation (8%) and FD rates (7%) over this period in the pie chart. The only instances where there was a loss were for holding periods shorter than 3 years. Such losses, which are a manifestation of interest rate risk, occur when interest rates rise.

Now we will see how SIP investments, one fixed and one 10% yearly top-up, have performed.

Rolling fixed SIP return distribution

Rolling 10% per year top-up SIP return distribution

We see similar trends with increasing the investment holding period for an investment made monthly in SIP form. Interestingly the top-up SIP returns are higher than the fixed SIP due to significant interest rate decreases in the economy in the last few years.

What should investors do with this fund?

As the chart shows above, there is quite a bit of fluctuation in the NAV movement of gilt funds that investors should be mindful of.

The graph has a long-term upward trend (dotted blue line). Still, there have been many periods with sharp rises, falls and even sideways movement in the NAV, as shown in red ovals. These characteristics mean that gilt funds have similar movement characteristics to equity funds but are less intense in both rises and falls. As we have seen above, these funds are unsuitable for short-term investments, whether as a lump sum or in SIP form.

The key here is to combine this gilt fund and similar ones with both equities and short-duration debt funds to create a diversified portfolio. We will cover the concept in a future article.