Gilt Funds
28 Oct 2021

Gilt Funds

Decoding Gilt Mutual Funds and Why they make excellent investments

Key Takeaways

  • Gilt Funds are a category of Debt Mutual Funds.
  • These funds typically invest in government securities.
  • The government-backing makes Gilt Funds one of the safest investment instruments.
  • Gilt Funds are ideal for conservative investors with lower risk appetites.
  • You usually have to stay invested for 3-5 years to earn moderate returns.

That Mutual Fund investments help with corpus creation and attaining financial security is no hidden secret. They continue to remain the most preferred investment option for investors with varying risk appetites – conservative, moderate, or aggressive. But for novice investors, who are just embarking on the roller-coaster, that is Mutual Fund investments; it can be pretty confusing to select the best funds to invest. Such investors can consider Gilt Mutual Funds. Here is a brief guide on Gilt Funds.

What are Gilt Funds?

A Gilt Fund is a type of Debt Mutual Fund that invests in government bond funds and fixed interest-generating securities issued by the central and state governments of a country. Per SEBI regulations, at least 80% of assets in this fund are used to invest in government securities of varying tenures. Since the government backs these funds, they carry minimal risk.

Features and Benefits of Gilt Funds

Low credit risk

Since Gilt Funds primarily invest in government securities, they are backed by sovereign guarantees. These funds carry minimal to no credit risks as the underlying securities are issued by the government. This feature makes Gilt Funds the ideal investment instrument for risk-averse investors.


When you invest in Gilts, the gains you earn primarily depend on interest rates. However, interest rates may be revised from time to time, and although you stand to earn regular returns, they are not fixed and cannot be guaranteed. That said, during a regime of falling interest rates, you can earn returns of up to 12% from your Gilt Fund investments, but if the interest rate increases sharply, the Net Asset Value (NAV) of the fund may fall drastically. Likewise, in a bear economy, the Gilt Fund returns rate can be better than that from equities.

Investment Horizon

Gilt Funds come with medium to long-term investment horizons. The fund manager invests in Gilt Funds with a maturity period ranging from three to five years. You need to ensure you stay invested for this investment term to accrue the expected returns on investments.

Gilt Fund Facts and Things to Consider

  • While investing in Gilt Funds, you must consider the expense ratio, which includes the fund manager’s fee and other similar expenses.
  • The upper expense ratio limit specified by SEBI for Debt Fund investment is 2.25%, excluding the fund manager’s fees.
  • You should invest in Gilt Funds if you are a conservative investor with a low-risk appetite.
  • Gilt Fund investments assist with capital preservation while generating moderate returns.
  • Based on your investment term, you have to pay income tax on gains from funds, which could be short or long term capital gains.

Final Note

So, if you are looking for Mutual Funds to invest in 2021, you can consider adding Gilt Funds to your investment portfolio. You can consult your investment advisor to help you choose the best Gilt Funds per your risk appetite, investment goals and preferred investment horizons. Also, ensure you familiarise yourself with the Reserve Bank of India and SEBI guidelines about Gilt Fund investments.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.