Gilt Funds – Meaning and Benefits

Posted by nishantdhar on May 23rd, 2019

Gilt funds are the sub-type of debt mutual funds. They invest only in Government Securities (G-Secs). As compared to regular debt funds, gilt funds offer higher security.

Features and Benefits of Gilt Funds

  • In India, the interest rate on gilt funds is determined by the Reserve Bank of India (RBI).
  • Gilt funds invest in securities issued by the government which make them highly secure and almost risk-free, though the only risk they carry is the interest rate fluctuation.
  • The credit risk in gilt funds is as low as nil.
  • Gilt funds are available for short-term, mid-term and long-term. Their tenure depends on the maturity of the instruments they invest in.
  • The maturity of a gilt fund is generally higher than other mutual fund categories.

Mode of the functioning of Gilt Funds

  • In the case of a decline in interest rates, the prices of government bond increases. Hence, investors who invest in gilt funds during the falling interest rates get high returns.
  • They are not completely risk-free as any changes in the rate of interest by the government will impact the return on investment and yet they are far less risky than any other equity or debt fund.
  • The best time to invest in a gilt fund is when there is a fall in interest rates.

Who can invest in Gilt Funds

  • Investors, who are new to the market and would like to exploit debt funds, may invest in Gilt Funds.
  • Investors who are not ready for high-risk investment can choose to invest in Gilt Funds.

Things to keep in mind

  • Do not invest in Gilt Funds only because of government securities. As an investor, make rational choices and invest only if the fund meets your investment criteria and helps you achieve your financial goals.
  • It is important to learn about the market trend and existing interest rates before making the final decision.
  • Alternatively, if you are the first-time investor, do not hesitate to reach out to a financial consultant who can give you right and timely advice and suggestions.

About the Author

Joined: April 22nd, 2019
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