MUMBAI: Gilt funds have been return toppers with 15.75% among debt funds in the last one year but fund managers believe a large part of the rally is done and it would not be possible to replicate the performance next year. Investors should not chase gilt funds now and stick to short-term or corporate debt funds, they advise.In the last couple of months, bond markets have rallied sharply. The 10-year benchmark has rallied close to 100 basis points. From mid-May yield levels of 7.37%, when the exit poll results about the Lok Sabha were announced, it has rallied to 6.38% now.“Favourable election results, a global fall in bond yields, the budget sticking to the borrowing program, willingness of the government to borrow abroad and a slowdown in growth are some factors which have led to a rally in the bond market,” says Sachin Jain, analyst, ICICI Securities.“The regulatory push from Sebi which mandated liquid funds to hold 20% of their assets in safe treasury bills and government bonds is also driving this buying,” said Vikram Dalal, managing director, Synergee Capital.For the rally to continue, fund managers believe the RBI has to cut interest rates sharply by another 50 basis points. After the rate cut of 75 bps, another 25bps cut looks likely and discounted, but anything more than that could be difficult in the near term. Further rate cuts could depend on inflation, oil price movement and tax collections.“Post a 110 basis points rally in the last couple of months, it is difficult to make money out of gilt funds now,” said Vipul Gor, managing partner, Fixed Income Investment Advisors. He believes that the market has factored in a 25 basis points rate cut by the RBI and expects the 10-year bonds to trade in 6.2-6.4% and only rally to 6% in case the RBI gets aggressive and cuts rates by 50 basis points. After the sharp rally, financial advisers feel investors should stay away from gilt funds.