Gilt Funds

Gilt funds are a type of debt mutual fund that invests in government bonds, or government securities (G-Secs), issued by the Central and State Governments of India, and the Reserve Bank of India (RBI).
EXPLORE FUNDS
What Are Gilt Mutual Funds
EXPLORE FUNDS
4 mins
02-December-2024

Gilt funds are mutual funds that invest primarily in government securities. These securities are issued by the central and state governments and are considered to be one of the safest types of debt instruments in India due to their underlying assets, which are sovereign in nature. Gilt funds aim to provide investors with a combination of safety, stability, and reasonable returns.

In this article, we will explore the meaning, working mechanism, types, potential returns, associated risks, and taxation aspects.

What are Gilt Funds?

Gilt Funds are a type of debt mutual fund that primarily invests in government securities and bonds issued by central and state governments. These securities offer fixed interest returns and come with different maturity periods. Because the investments are backed by the government, they are considered to carry minimal risk compared to other debt instruments. However, these funds are still subject to interest rate fluctuations, which can impact returns based on the market environment. Gilt Funds are generally seen as a secure investment option for conservative investors.

Several factors suggest that gilt funds could be a strategic choice for investors at present:

  • Potential for capital appreciation: Long-duration gilt funds with a modified duration of around 10 years may offer capital appreciation in the range of 2-3% over the next year. This expectation is based on anticipated interest rate movements.
  • Attractive yields: Gilt funds typically provide competitive yields, making them an appealing option for income-seeking investors.
  • Portfolio diversification: Incorporating gilt funds into an investment portfolio can help diversify risk, as their performance tends to be less correlated with equity markets.
  • Anticipated rate easing cycle: Experts predict a decline in interest rates in the upcoming fiscal year (FY25). This trend could further benefit long-duration gilt funds, as bond prices generally rise when interest rates fall.

Features of Gilt Mutual Funds

Gilt funds share some characteristics with fixed and recurring deposits but differ in terms of interest payments. Unlike deposits, gilt funds do not distribute interest throughout the investment period; instead, interest is paid upon maturity. The interest on these funds is tax-free if held for 5 to 10 years. Government interest rates on gilts vary from 1% to 7%, and returns are often adjusted for inflation. While gilt fund values can fluctuate, they generally outperform fixed deposits over time, making them attractive for long-term, inflation-protected investments.

How do Gilt Mutual Funds work?

Gilt funds pool money from various investors and use these funds to invest in government securities with varying maturities. These securities are backed by the Indian government, so the principal amount potentially secure. The returns from Gilt funds are primarily generated through interest income accrued on the invested government securities which are then passed on to the investors. These returns are influenced by changes in interest rates. When interest rates fall, the value of government securities increases, resulting in higher returns for investors. Conversely, when interest rates rise, the value of government securities decreases, resulting in lower returns for investors. The fund manager's expertise also plays a crucial role in selecting the right mix of securities to maximise returns while minimising risks.

Benefits of Investing in Gilt Mutual Funds

  • Less risk: One of the main benefits of investing in gilt mutual funds is that they offer almost zero default risk. Since these funds invest primarily in government securities, they carry zero default risk.
  • Steady and good returns: Gilt funds offer relatively stable returns compared to other mutual fund categories. They are less susceptible to market volatility, making them suitable for long-term financial goals. They may also offer higher returns than other types of debt instruments such as fixed deposits and savings accounts.
  • Diversification: Gilt funds provide investors with a diversified portfolio of government securities with varying maturities. This diversification helps spread risk and minimize the impact of interest rate fluctuations.

Top performing funds

Equity

Debt

Hybrid

Tax saver

View All
View all

Frequently asked questions

What is the Gilt Fund’s meaning or definition?

Gilt funds are a type of mutual fund that invests in government securities such as bonds and treasury bills.

What are Gilt Funds in India?

Gilt funds in India are mutual funds that invest in government securities such as bonds and treasury bills.

Should I invest in Gilt Mutual Funds?

Gilt mutual funds are considered relatively safe investments as they invest in government securities. However, like all investments, they carry certain risks. The choice to invest in gilt mutual funds depends on individual investor preferences and financial goals.

Which kind of securities does the Gilt Fund invest in?

Gilt funds invest in government securities such as bonds and treasury bills.

What is the appropriate time period to invest in your gilt funds?

The appropriate time period to invest in gilt funds depends on individual investor preferences and financial goals.

How are the returns of gilt funds calculated?

The returns of gilt funds are calculated based on the performance of the underlying government securities.

What is the Gilt Fund’s meaning or definition?

Gilt funds are mutual funds that exclusively invest in government securities such as bonds and treasury bills, offering a secure, low-risk investment option.

What is the appropriate time period to invest in your gilt funds?

The ideal investment duration for gilt funds varies based on an investor’s preferences and financial goals. Generally, these funds are suitable for long-term investments, especially for those looking to minimise risk while benefiting from relatively stable returns backed by government securities.

Show More Show Less

Related Videos

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
  • Invest in fixed deposits and mutual funds on the app.
  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
  • Pay and manage your bills and recharges using the BBPS platform. Use Bajaj Pay and Bajaj Wallet for quick and simple money transfers and transactions.
  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
  • Use specialised tools like EMI calculators, SIP Calculators
  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

Do more with the Bajaj Finserv App!

UPI, Wallet, Loans, Investments, Cards, Shopping and more

GET THE APP

Disclaimer

Bajaj Finance Limited (“BFL”) is an NBFC offering loans, deposits and third-party wealth management products.

The information contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. 

This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.

Disclaimer:

Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319

BFL does NOT:

(i) provide investment advisory services in any manner or form:

(ii) carry customized/personalized suitability assessment:

(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:

Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.


Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.