"We don't see downward pressure on bond yields"

 Sandesh Kirkire, Fund Manager, K Bond Short Term Plan

 What prompted you to change your policy and increase your exposure to gilts?

 When we started operations, we wanted people to come to terms with the product. Gilts have higher volatility compared to corporate papers. We wanted to keep volatility low in order to increase confidence among investors.

 Later, when we felt that investors had gained an understanding about the working of a short-term debt scheme like ours, we increased the holding of gilts in the scheme.

 Are you planning to further increase your holding in gilts?

 We move in and out of gilts depending upon the trading opportunities.

 At present, we do not perceive a large downward pressure to be exerted on bond yields. At most, there may be a small fall in yields.

 This means that there will be limited opportunities for trading gains in gilts. This has prompted us to keep a low exposure in gilts. We shall change the investment in gilts only if we see an upside potential.

 In what range does average maturity vary in your portfolio? How much is the current average maturity?

 We keep our average maturity in the 1-1.5 years level. At present our maturity is about 0.9 years. It is lower because of the presence of a significant amount of cash in our portfolio.

 We have a large amount of cash as we wish to be ready to move into gilts whenever we see a trading opportunity.

 A low average maturity would reduce credit risk. Would this prompt you to increase your investment in AA-rated papers?

 We invest only in those AA-rated securities that are well known and are candidates for a rating upgrade. For example, we have invested in ACC and IDBI.

 However, the low average maturity of the scheme does not mean that the maturity of the corporate securities will also be low.

 For instance, the maturity of the ACC security is about three years. We shall increase our investment in corporate bonds as and when we see an opportunity.