What are Gilt Mutual Funds?

Learn about Gilt Mutual Funds, know their workings, benefits, and how they can enhance your investment portfolio.
4 mins
05 October 2023

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.

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.

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.

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