How Axis Mutual Funds’ Gilt Funds Help You Manage Interest Rate Risks

[Abhilash Rathore]

For investors focused on stability and safety in their portfolios, gilt funds have long been an attractive option. Axis Mutual Funds’ Gilt Funds provide a unique way to invest in government securities while managing interest rate risks effectively. With careful management and a focus on minimizing volatility, Axis Mutual Funds offers investors a chance to balance potential returns with safety, even in uncertain interest rate environments.

Interest Rate Risk in Gilt Funds

Interest rate risk is a key consideration when investing in any type of bond or debt fund. It refers to the risk of bond prices fluctuating due to changes in interest rates. When interest rates rise, the prices of existing bonds tend to fall, as new bonds offer higher rates and therefore are more attractive to investors. This price drop directly affects the NAV of gilt funds, causing a dip in the fund’s overall value.

On the other hand, when interest rates decline, the prices of existing bonds go up, as these bonds offer better rates compared to new ones. This boost in bond prices can lead to an increase in the NAV of gilt funds. For investors, this means that gilt funds can be more profitable in a declining interest rate environment but may see reduced returns when rates rise.

How Axis Mutual Funds Manage Interest Rate Risks in Gilt Funds

Axis Mutual Funds takes a proactive approach to manage interest rate risks in their gilt funds. Here are some of the main strategies they use:

1. Active Duration Management

Axis Mutual Funds employs active duration management in their gilt funds. Duration refers to the average time it takes for a bond’s cash flows to be repaid. Bonds with longer durations are more sensitive to interest rate changes. By adjusting the duration of the fund’s portfolio, Axis aims to minimize the impact of rate fluctuations. In a rising interest rate environment, the fund may shorten its duration to reduce sensitivity. Conversely, in a declining rate environment, the fund may extend its duration to capitalize on potential gains.

2. Diversification Across Maturities

Another strategy employed by Axis Mutual Funds’ Gilt Funds is diversification across various maturities. By holding bonds with different maturities, the fund can spread its exposure to rate changes, making it less vulnerable to a single rate movement. This diversification allows the fund to balance out the effect of rate changes on different securities, reducing the overall impact on the fund’s NAV.

Benefits of Investing in Axis Mutual Funds’ Gilt Funds

For conservative investors, Axis Mutual Funds’ Gilt Funds provide several advantages:

• Credit Safety: Since gilt funds only invest in government securities, they carry minimal default risk. This high credit quality makes them a safer choice for investors who prioritize capital protection.
• Liquidity: Government securities are highly liquid, which means that Axis Mutual Funds’ Gilt Funds can buy and sell these securities with ease. This liquidity allows investors to redeem their investments relatively quickly if needed.
• Tax Efficiency: For investors who hold gilt funds for more than three years, they qualify for long-term capital gains tax benefits with indexation. This can help reduce the tax impact on returns, making them a more tax-efficient investment choice for long-term holders.

Why Axis Mutual Funds’ Gilt Funds Are Ideal for Managing Interest Rate Risks

For investors seeking a balanced approach that provides capital safety along with rate risk management, Axis Mutual Funds’ Gilt Funds are a suitable option. The fund’s combination of active management, duration adjustment, and diversified maturity structure makes it well-equipped to navigate various rate scenarios. With the additional benefit of credit safety due to government backing, Axis Mutual Funds’ Gilt Funds offer conservative investors a way to earn stable returns without excessive risk.

Axis Mutual Funds’ Gilt Funds present an effective way for conservative investors to manage interest rate risks while maintaining safety in their portfolios. With a strategic mix of duration management, diversified maturities, and hedging techniques, these funds help offset the impact of rate changes on returns.