KNOWLEDGE CENTRE Debt Funds / What Are Gilt Funds?
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What Are Gilt Funds?


With many alternative investment options, investors tend to get confused between their features and are unable to make the right choice. For an investor, it is important to understand what an instrument offers and the peculiarities attached to it. Diversification is the key to building a strong portfolio and investing in different asset classes is an ideal step to achieve proper diversification in your portfolio.

Gilt funds are a type of mutual fund, which only invest in the bonds and securities issued by the government (g-secs). They vary in terms of maturity and are considered a risk-free option because the money invested is in the safe hands of the government. Medium-term and long-term government securities are picked for investment and since the interest on the same is determined by the Reserve Bank of India (RBI), it is considered as a low-risk investment option.

What Are The Returns Offered By Gilt Funds?

This mutual fund type carries a return which is based on the repo rate fixed by RBI. If RBI does not change the rate of interest, it will be a good time to invest in gilt funds. The funds offer reasonable and consistent returns, which makes it a preferred investment choice for many.

Why Are Gilt Funds Called Low Risk Investments?

They are considered to be a safe investment with low risk since they invest in bonds and securities from the government. It does not mean that it is a completely risk-free option. It does carry the risk of interest rate fluctuation. If the government makes any changes in the rate of interest, it will impact your return on investment. As compared to equity or even other debt instruments, it is definitely a less risky option.

What Are The Taxes Applicable On Gilt Funds?

There is no securities transaction tax (STT) applicable on gilt funds. They are taxed under the Income Tax Act, 1961 as any other capital gain through investment in debt instruments. If the investment period is below 1 year, the gains are added to your salary and taxed according to your income slab. If more than 3 years, it is taxed 20% with indexation benefit.

How Long Should You Invest In Gilt Funds?

If you are someone who invests in debt funds, you should choose gilt funds. It offers a higher return when compared to bank savings accounts, and that too with minimal risk. It is ideal to time your entry and exit from the fund in order to benefit from the interest rates. Equity and debt, in most cases, have an inverse movement. For instance, if equity is not performing well, you will notice that debt funds are doing well. This is the time to enter the market. With declining interest rates, you may make the most of the funds by investing in long-term government securities. Investors who have recently entered the market and are not ready for any high-risk investment should choose gilt funds as an investment option.

Prior to investing, investors need to determine their risk appetite and then make a decision to invest. The funds are ideal for a reasonable return and high security. The maturity of a gilt fund is higher than other mutual fund types. The tenure varies depending on the bond you invest in. If a fund manager wants to extend the period of maturity in a fund, they choose to invest in gilt funds to achieve the same. Do not invest in the funds simply because of the security of government. Make rational choices and only invest if it meets your investment criteria and helps you achieve your long-term financial goals. Learn about the market sentiments and existing interest rates before making your decision and choose a fund which has performed well in the past. In case you are an amateur investor, do not hesitate to get in touch with a financial consultant who may give you the right and timely suggestions.

In case you think your consultant has a biased opinion, you have another option—the Angel Bee mobile application. This user-friendly app has a unique feature, which provides customized recommendations to the user. The ARQ investment engine runs on algorithms and is free of human intervention. Download the app today and enjoy making the right investment choices on the go.


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