As compared to gilt funds, income funds have offered superior returns over the last month. Investors with a stomach for a little more risk, may want to look at income funds.

Gilt funds invest purely in government securities and are alternatively referred to as G-Sec funds. Government securities (Gilts) prices fell last month because of the Reserve Bank's supply of paper in May. Inflationary concerns is another area, which had a depressing effect on prices. This took its toll on the net asset values (NAVs) of Gilt funds. Over the last month the maximum return that gilt funds have given is 0.60% (DSP G-Sec and K Gilt Savings).

Open-ended Gilt Schemes	NAV (Rs)	Last week	Last month	Last year	Since inception
JM G-Sec (RP) (Div)	10.1	2.1%	-0.1%	0.0%	9.8%
Birla Gilt Plus Inv. (Gr)	10.9	0.5%	-0.5%	0.0%	8.7%
Templeton Govt Sec (Gr)	11.6	0.4%	0.2%	0.0%	16.4%
DSP ML Govt.Sec. B (Gr)	10.8	0.3%	0.6%	0.0%	7.6%
Zurich (I) Sov Gilt (IP) (Gr)	10.3	0.3%	0.4%	0.0%	2.2%
Pru ICICI Gilt(IP) (Gr)	11.2	0.3%	-0.4%	0.0%	11.8%
JM G-Sec (STP)	10.5	0.3%	0.5%	0.0%	7.7%
DSP ML Govt.Sec. A(Gr)	11.1	0.2%	0.2%	0.0%	10.8%
Alliance Govt.Sec.(ST) (Gr)	1,075.0	0.2%	0.4%	0.0%	7.2%
K Gilt Savings (Gr)	11.6	0.2%	0.6%	11.0%	11.0%
Birla Gilt Plus Liquid (Gr)	10.9	0.2%	0.4%	0.0%	9.3%
K Gilt Investment (Gr)	12.0	0.2%	0.0%	13.9%	13.6%
Cangilt PGS (Gr)	10.6	0.2%	0.1%	0.0%	6.2%
Tata Gilt Sec. B (App)	11.4	0.1%	0.0%	0.0%	13.6%

Income funds invest in debentures/bonds, money market securities (call money) as well as gilts. As compared to their gilt counterparts, income funds have given higher returns both over the last week and last month. Over the last month, most income funds have given a minimum return of 0.70%, with two funds (Tata Income-App. and Deposit I-Nit-Plan A) giving 1.20%.

Open-ended Income Schemes	NAV (Rs)	Last week	Last month	Last year	Since inception
Deposit I-NIT 1997 (Plan A)	11.0	5.0%	1.2%	0.0%	25.6%
JM Liquid Fund (Div)	10.2	1.8%	0.3%	11.8%	15.0%
K P Pension Plan (Gr)	15.7	1.6%	-0.4%	14.7%	15.4%
Cancigo	1,108.3	1.0%	0.0%	10.5%	11.3%
Sun F&C Monthly Inc. (Gr)	10.2	0.8%	-0.3%	0.0%	-0.3%
Tata Income Fund (App)	15.1	0.8%	1.2%	12.6%	13.8%
Alliance Monthly Inc.(Gr)	12.6	0.6%	0.2%	0.0%	23.1%
Dundee P S B (Mthly Div)	10.1	0.3%	0.9%	0.0%	4.1%
LIC Bond Fund (Gr)	11.6	0.3%	0.6%	0.0%	14.7%
Dundee P S B Fund (App)	11.0	0.3%	0.9%	0.0%	9.6%
Chola Free. Income (Reg)	10.3	0.3%	0.9%	11.7%	10.9%
Templeton M I P (Gr)	10.3	0.3%	0.9%	0.0%	2.4%
Chola Triple Ace (Div)	10.9	0.3%	0.9%	12.1%	12.9%
JF India Bond Fund (Gr)	13.8	0.2%	0.6%	13.1%	13.5%
Sundaram Money (App)	10.2	0.2%	0.7%	0.0%	2.1%
Templeton Income (Gr)	15.3	0.2%	0.3%	14.3%	14.0%
Zurich (I) Liquidity (IP)	10.5	0.2%	0.7%	0.0%	4.6%
Birla Cash Plus (Gr)	13.1	0.2%	0.7%	9.4%	9.5%
K P Child. Asset	12.6	0.2%	1.1%	11.8%	14.4%
Alliance Cash Manager	1,193.5	0.2%	0.7%	9.4%	9.0%
Reliance Income (Gr)	13.4	0.2%	0.7%	12.7%	13.0%

Income funds are clearly the better option for investors in fixed income mutual funds. Income funds have outperformed gilt funds in the last month. (Comparison over the last year is meaningless as most gilt funds do not have a 12 month history). However, investors need to understand the risks associated with income funds. Unlike gilt funds, income funds have an inherent credit risk associated with them. This means that the investments (except gilts investments) of an income fund could go bad. However, income funds try to circumvent this risk by picking corporates with strong credit ratings. Income funds also have an inherent interest rate risk associated with them to the extent they have invested in gilts.

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