A lot of the Mutual funds maintain long run gilt. Fee is just not floating, so if present rate of interest falls, worth of the holdings will increase to lower the efficient yield. If present gilt is say 5% and fund had purchased at 6%, then worth of gilt holdings should enhance in order that efficient yield goes from 6 to five% for anybody shopping for as we speak.
Else you give free cash to anybody shopping for gilt from market at 6% yield when contemporary gilts are giving 5%.
For brief time period gilt this impact could be much less, however i believe brief time period gilt as a class has disappeared from mutual funds sadly…
Simply google – how bonds strikes on rate of interest adjustments