Current scenario of lockdown due to pandemic COVID-19 has not only contracted the Indian economy but analysing at its continuing impact RBI has projected negative GDP growth rate in the current FY 2020-21.

To counter the severe economic impact, RBI has not only reduced the Repo rate by 40 basis point to 4% and benchmark interest by 75 basis points, it has also extended the moratorium in respect of all term loans for further period of 3 months as a remedial measure.

There is no doubt that covid crises and its repercussions on the economic prospects has led the RBI to announce these measures. The downward march of interest rates is likely to gain momentum with this move.

Surplus liquidity, a dovish stance and weak growth conditions should pave the way for further rate easing in the months ahead, causing bond yields to rally.

From an investment standpoint short bonds with a duration of 3 to 4 years are likely to see opportunities across the other option, as the rate cut is likely to reflect in a lower Yield to Maturities (YTMs) from the current level. Hence we favor high quality short-term investment strategies at this juncture.

One of the short-term investment strategies is to invest in Government security/Gilt fund with duration of 3 to 4 years. These Gilt fund are having its 80% of its funds invested in sovereign guarantee long- terms bonds bearing coupon rate varying from 7% to 8%.

Investing at current level in Gilt fund not only protect investor from the credit default risk but also gives stable income at higher rate over a period of 2 to 3 years. Over a period of 2 to 3 years investor can switch again into equity fund for aggressive return by that time industry and economy would be regaining its stable growth path.

Below is the performance chart of best performing Government security Funds for investment horizon of 1 to 2 years are:

Fund Name AUM (Rs. Cr) Return (%)
1 Mth 3 Mths 6 Mths 1 Yr 3 Yrs 5 Yrs Since Inception
DSP Government Securities Fund 1036.29 2.54 5.42 9.28 17.87 9.68 9.76 9.97
ICICI Prudential Constant Maturity Gilt Fund 164.19 3.04 5.76 9.46 18.57 11.06 10.77 11.26
IDFC Government Securities Fund Investment Plan 857.62 2.42 5.37 9.48 17.73 9.87 9.96 8.93
SBI Magnum Gilt Fund 2432.88 2.43 5.06 8.92 17.73 9.20 10.00 8.51
Axis Gilt Fund 86.26 1.44 5.48 8.77 17.23 8.73 8.89 8.04

We recommend strongly to go for SBI Magnum Gilt fund :Performance as on 26th May 2020***Mutual funds are subject to market risk, read offer related documents carefully before investing.

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