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GILT FUNDS - INVESTING IN GOVERNMENT SECURITIES - WHEN YOU SHOULD INVEST IN GILT FUNDS


Gilt Funds are a category of mutual funds which invest in Government Securities and comes under the broader category of debt funds. Here, Government Security refers to debt instrument issued by the Central Government or State Government for raising funds. They are issued through Reserve Bank of India and referred to as gilt.


Features of Gilt Funds


  • Capital Protection: Gilt Funds invest in government securities which are considered to be the safest financial instrument ensuring capital protection in Gilt funds.

  • Risk: Gilt Fund are susceptible to default risk, duration risk and interest rate risk.

  • Return: Since Gilt funds invest in debt instruments, it offers fixed return to the investor. However, the returns still vary as per the overall interest rate and it is recommended to invest when the interest rate is falling.

  • Investment Horizon: Gilt Funds have medium to long term investment horizon ranging from three to five years.

  • Tax Benefits: Return from Gilt Funds are taxable under the head Income under the head Capital Gains. Short Term Capital Gain (when holding period is less than 3 years) is taxable at slab rate whereas long term capital gain (when holding period is more than 3 years) is taxable at 20% with indexation.

  • Investment Mode: Investment can made via Lump Sum or SIP.


Who should Invest in Gilt Funds?


Whether an investor should invest in gilt funds or not depends on several factors such as risk appetite, investment horizon and investment objective. Investment in Gilt funds should be made if investor can hold the investment for three to five years and

  • Investor is a newcomer and seeking exposure to debt instruments

  • Investor has zero or very low risk tolerance and does not expect high returns from the investment

  • Investor is about to retire and looking for reliable options for investment

  • Investor wishes to balance portfolio by investing in both risky and stable investment options

  • Market is not performing well and investor wishes to gain safe returns

  • Interest Rates are falling


Top Performing Gilt Funds – Annualized Return

Scheme Name

3 Y Return

5 Y Return

Canara Robeco Gilt Fund – Direct Plan - Growth

6.75%

8.48%

ICICI Prudential Gilt Fund – Direct Plan - Growth

6.38%

8.28%

SBI Magnum Gilt Fund – Direct Plan – Growth

5.47%

8.26%

DSP Government Securities Fund – Direct Plan – Growth

4.87%

8.07%

Edelweiss Government Securities Fund – Direct Plan – Growth

5.02%

7.90%

Kotak Gilt Investment – Direct Plan – Growth

5.08%

7.89%


While investing in Gilt Funds, an investor should consider various factors such as expense ratio, returns, investment horizon, taxes and fund manager to take well informed and timely decisions.


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