GILT Funds In India: Meaning, Advantages, Risk & Returns

Gilt Funds are the category of mutual funds which plant it’s all money in the government-affiliated securities. So, the basic attribute attached to the Gilt funds is that they purely under the shadow of government bonds which makes it virtually risk-free. Accordingly, they are mainly for the hesitant and traditionalist investors who always seem to be suspecting the stock market and just want to play safe.

Let’s have a look at a few more aspects on GILT funds, its meaning, advantages, risk & returns associated with them. Gather important information on Gilt edged securities in India.

Should You Invest In Gilt Funds?

Gilt funds can be mostly advised to the investors who are dubious about the authenticity regarding the security of their invested money. At the same time it suits the ones who want to enjoy a fair amount of returns.

So, if you want to play safe, the Gilt fund will surely meet your needs because it invests only in the government securities high-quality debt instrument. It will also assist the risk-seekers if they park some of their money in this as the capital invested here won’t be lost.

When Is The Correct Time To Switch To Gilt Funds?

All we can say is that it is best to enter and exit Gilt funds markets relating it to the repo rates from the Reserve Bank of India. When the Reserve Bank of India is not likely to raise the interest rates, it is surely the best time to park your money in these Gilt Funds. It can be truly said that there is a contrary correlation between bond prices and interest rates.

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When the equity market is not giving you returns, it is a smart move to switch to these Gilt funds as debt and equity are inversely related. Thus, when the interest rates have notched to its peak or have thrashed to the bottom, it is a looming opportunity to invest in Gilt Funds.

Why is it safer in Comparison to other Mutual Funds?

  • From a safety point of view, Gilt funds tops the list with almost negligible credit risk till their maturity.
  • When crises hit the market, the best option is to park your money in gilt funds.
  • They are operated completely under the shadow of the government and central provision.
  • Over the past three years’ gilt investment had delivered 4.38 percentage returns, the best debt return.
  • Besides helping you with your capital appreciation, it will also facilitate you in reducing your tax liability. Due to this reason also they are be perceived as safer.

Gilt funds in India, gilt funds meaning

Effect of Demonetization On Gilt Funds:

After the demonetization took place in India, there was a lot of hustle-bustle among the investors about their investment plans. Investment experts proposed to put their money in long-term debt mutual fund which includes Gilt funds too. They based it on the theory that due to the act of demonetization, the cash liquidity in the banks sky-rocketed. And, sooner or later there would be a reduction in the interest rates that banks provide.

Thus, as we all have already discussed that the bond prices and interest rates and this yield fall in interest will push the prices of NAVs of debt funds. But, also many people suggest not to put their capital in gilt funds with a view of short-term because it may end up being a boomerang.

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Why Was It Not A Good Idea To Invest In Gilt Funds Back Then?

Gilt funds were getting a huge amount of investors formerly in 2015. The reason for that was the investors were betting heavily on yields of gilt funds. They went with the rule that bond prices move in the opposite to interest rates. But, divergent to the beliefs yield on the 10-year bond remained unchanged.

Due to the fiscal budget, the interest rate on mutual fund decreased from 8.4% to 5.8%. Despite strong rates slice gilt funds suffered and investors were advised to start to pull off.

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Gilt Funds: Advantages & Disadvantages


  • As the major capital is parked in the government securities, the credit risk is reduced to a great extent.
  • It will also aid you to slice your tax liability.
  • The common man can’t have a blooming pocket to invest directly in the government securities. So, they can enjoy the benefit of investment in government securities with a minimal amount of Rs.5000.
  • Your Capital is in safe hands.
  • Guaranteed return because Reserve Bank of India (RBI) plays an important part in gilt funds.
  • You can enjoy Portfolio Diversification.


  • Like any other mutual fund Gilt Fund are not 100% secure.
  • These funds get directly affected due to the changes in interest rates.
  • Gilt funds are not so liquid as they can’t be traded like other securities.

Major Players In The Market:

  • Reliance Gilt Sec. – RP
  • SBI Magnum Gilt – LTP
  • ICICI Pru Long Term Gilt
  • HDFC Gilt Fund – LTP
  • Birla Sun Life GSec – LTF
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Gilt Funds in India: The Bottom Line

Now, if you are an investor and want to put your money where you can enjoy both security and reasonable returns, the Gilt fund may be for you. But, they will cater you with the highest returns only when the interest rates fall due to its inverse relationship with it. And, if your instinct says that interest rates will fall in the coming future, invest in gilt funds without much ado. If not, you may look for various other long term investment options available in India.

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