This was an appropriate time to hold long-term government securities as the Public Provident Fund and Postal Savings rates were reduced by 100 basis points making longer duration instruments more attractive. March saw the fund pick up IDBI bonds to the extent that these formed 6.46 per cent of the portfolio. The funds holdings were radically changed in April when the fund jettisoned it's holdings of long dated government securities. The proceeds from these was invested in call money instruments which now accounted for more than 50 per cent of the portfolio. As gilts form the major portion of the portfolio the fund is maintains a high credit quality.
Gilts being sovereign paper are devoid of default risk.
However, the fund will be subject to fluctuations in the price of these papers as the interest rate outlook changes. The funds investments in bonds are limited and these are also of high credit quality. The fund has high concentration levels. The latest portfolio disclosure reveals that 12.25 GOI 2010 accounts for more than 80 per cent of the portfolio. The change in yields of this paper will thus largely govern the return the fund will generate.