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| Sandesh Kirkire, Fund Manager, K-Gilt Investment Plan |
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| What is your view on interest rates? |
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| We expect interest rates to remain in a narrow band. Interest rates may not increase due to the liquidity overhang in the economy. Credit offtake has not really taken off in the non-food segment of the banking sector. Besides, the RBI prefers to keep interest rates low. |
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| Interest rates are also unlikely to go down. Though the inflation rate is low, it is higher than what was prevailing last year. |
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| Interest rates may fall only if the RBI decreases the repo rate. The overnight credit rate and consequently the entire interest rate curve depend on the repo rate. |
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| Although there have been some indications of a repo-rate cut, the market is not very enthusiastic. |
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| The fund has a significant proportion of its holdings invested in cash and short-term securities. What is the reason? |
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| Our investment in cash was determined by our view on interest rates in late-June. We have reduced our exposure to cash to 7 per cent as the market situation has improved. |
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| What is your average maturity? Has it been changed over the past three months? |
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| Our average maturity has come down to 8 to 8.5 years from over 10 years a couple of years ago. This is because the appetite for long-term paper has come down. |
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| The interest rate spread between long-term and short-term papers has been shrinking. The situation has reached a point where the interest spread between long-dated and medium-term papers does not justify the risk taken in investing in long-term papers. |
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| Besides, medium-term papers have given better returns than long-term papers in the past few months. |
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| Going by returns, the performance of the fund has not been very encouraging. How do you explain this? |
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| We might not have done very well in terms of absolute returns, but while comparing returns it is necessary to look at risk-adjusted returns rather than absolute returns. |
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| For many of the funds that have given higher returns have done so with higher risks being associated with them. Therefore, I would say that we have not lagged behind others in terms of risk-adjusted returns. |
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