A Gilt Fund is a mutual fund that invests solely in government securities, such as treasury bills, government bonds, and securities issued by government entities. These funds offer a safe investment avenue as they are backed by the government and carry no default risk.
Investors seeking a safe haven for their investments can rely on Gilt Funds for stable returns and capital preservation.
Moreover, Gilt Funds are crucial in supporting government initiatives and economic growth by providing a stable funding source for government projects and infrastructure development.
Contents:
- Gilt Fund Meaning
- How To Invest In Gilt Funds?
- Types of Gilt Funds
- Difference Between Gilt And Debt Fund
- Gilt Funds Taxation
- Best Gilt Funds
- What Is Gilt Fund – Quick Summary
- Gilt Mutual Funds – FAQs
Gilt Fund Meaning
Gilt full form is “Government Securities Investment Fund.” Gilt funds refer to mutual fund schemes that invest exclusively in government securities, often known as gilts or government bonds. Because these funds invest in sovereign bonds, the principal and interest payments are guaranteed by the government, making them a low-risk investment option.
Consider the case of the SBI Magnum Gilt Fund, a popular Gilt Fund in India. The money pooled from the investors of this fund is majorly invested in government securities. Hence, the return investors get from this fund is closely linked to India’s economic health and the government’s fiscal policy.
How To Invest In Gilt Funds?
Investing in Gilt Funds is a straightforward process, similar to investing in any other mutual fund scheme. Here are the steps involved:
- Choose the Gilt Fund: Research and choose a gilt fund that suits your investment objective and risk appetite.
- KYC Compliance: Ensure you have completed your KYC (Know Your Customer) process. It is a one-time process necessary for investing in any mutual fund scheme in India.
- Online Application: Visit the official website of the mutual fund house or a trusted financial platform. Fill in the necessary details and choose the Gilt Fund you want to invest in.
- Payment: Make the payment through any of the accepted online payment methods.
- Confirmation: Once the payment is successful, you will receive a confirmation of your investment on your registered email ID.
Remember that while Gilt Funds carry low risk, it’s crucial to consider your investment goals and risk tolerance before investing.
Types of Gilt Funds
Gilt Funds can be categorized into two types based on their investment strategy:
- Gilt Funds with 10-year constant duration: These funds invest in government securities with a constant duration of 10 years. HDFC Gilt Fund – Long Term Plan is an example of this type.
- Regular Gilt Funds: These funds do not have a constant duration. They invest in government securities with varying maturities based on the interest rate scenario. SBI Magnum Gilt Fund is an example of this category.
Difference Between Gilt And Debt Fund
The key difference between gilt and debt fund is Gilt Funds invest only in government securities, ensuring a very low default risk. On the other hand, Debt Funds invest in a mix of government and corporate bonds, making them relatively riskier.
| Parameters | Gilt Fund | Debt Fund |
| Objective | To invest in government securities | To invest in a mix of government and corporate bonds |
| Risk | Low (Government-backed) | Moderate to High (Depends on Credit Quality) |
| Returns | Relatively stable and generally lower | Potential for higher returns with higher risk |
| Investment | Primarily in government securities (gilts) | Diversified across government and corporate bonds |
| Credit Quality | Typically high credit quality (backed by the government) | Varies depending on the quality of underlying bonds |
| Interest Rate Sensitivity | High sensitivity to interest rate changes | Moderate sensitivity to interest rate changes |
| Liquidity | Generally high liquidity due to active trading | Liquidity varies depending on the underlying bonds |
| Investment Horizon | Suitable for long-term investors | Suitable for short to medium-term investors |
| Risk Factors | Interest rate risk and reinvestment risk | Credit risk, interest rate risk, and reinvestment risk |
| Investor Profile | Conservative investors seeking stable returns | Investors with a moderate risk appetite seeking higher returns |
Gilt Funds Taxation
Gilt Funds, like all debt funds in India, are subject to tax. If you redeem your investment within three years of purchase, the gains are treated as short-term capital gains and are taxed as per your income tax slab. If you hold your investment for over three years, the gains are considered long-term capital gains and are taxed at 20% with indexation benefits.
For example, if an investor falls in the 30% tax bracket and makes a short-term gain of ₹10,000 on their Gilt Fund investment, they would have to pay ₹3,000 as tax. However, if the same investor holds the fund for over three years, they would pay only 20% tax on the indexed gains, which could significantly reduce their tax liability.
Please remember that tax laws are subject to changes, and it’s always advisable to consult a tax advisor for the latest rules.
Best Gilt Funds
Here are some popular Gilt Funds in India:
| Fund Name | Returns (%) – 1 Year | Returns (%) – 3 Years | Returns (%) – 5 Years |
| SBI Magnum Gilt Fund | 9.03% | 5.14% | 8.82% |
| HDFC Gilt Fund | 7.43% | 3.82% | 6.83% |
| ICICI Prudential Gilt Fund | 9.68% | 5.28% | 8.57% |
| DSP Government Securities Fund | 7.94% | 4.76% | 8.93% |
| Nippon India Gilt Securities Fund | 8.47% | 4.14% | 8.59% |
Do you want to expand your knowledge about mutual funds? We’ve got a list of must-read blogs that will help you do just that. Just click on the articles to find out more.
What Is Gilt Fund – Quick Summary
- A Gilt Fund is a mutual fund that primarily invests in government securities.
- Gilt Funds are often seen as safe investments as the government backs them, hence the risk of default is nearly zero.
- There are two types of Gilt Funds: Long-Duration Gilt Funds and Short-Duration Gilt Funds, each serving different investor needs.
- Gilt Funds differ from Debt Funds in terms of risk and return; while Gilt Funds invest in government securities, Debt Funds invest in corporate bonds.
- Gilt Funds are subject to taxation like any other debt mutual funds. The rate depends on the holding period.
- Some popular Gilt Funds in India include the SBI Magnum Gilt Fund, HDFC Gilt Fund, ICICI Prudential Gilt Fund, DSP Government Securities Fund, and Nippon India Gilt Securities Fund.
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Gilt Mutual Funds – FAQs
A Gilt Fund is a category of mutual funds that predominantly invest in government securities, which are considered risk-free. The returns are usually stable, making them a preferred choice for conservative investors.
G SEC mutual funds, or Government Securities mutual funds, invest primarily in government securities. These are considered safe investments as the chance of the government defaulting is low.
Gilt funds work by investing in government securities. The fund manager purchases these securities, and the returns are generated from the interest accrued or through selling the securities when their market prices go up.
Here are the best gilt funds in 2024:
| Fund Name | Interest Rate |
| DSP Government Securities Fund | 8.94% |
| SBI Magnum Gilt Fund | 8.82% |
| Edelweiss Government Securities Fund | 8.59% |
The minimum investment in a gilt fund can vary from fund to fund. Some funds may allow an initial investment as low as INR 500, while others may require a larger sum. It’s best to check with the specific fund for accurate details.
Yes, gilt mutual funds are taxable. The rate of tax depends on the holding period. If the holding period is less than 3 years, it’s considered a short-term capital gain and is taxed as per the investor’s income tax slab. If the holding period is over 3 years, it’s considered a long-term capital gain and is taxed at 20% with indexation.
Whether it’s good to invest in gilt funds or not depends on the investor’s risk profile and investment horizon. For risk-averse investors looking for stable returns, gilt funds can be a good choice.
Gilt funds can offer better liquidity and potentially higher returns than fixed deposits (FDs). However, FDs are entirely risk-free, while gilt funds do carry a small degree of risk due to interest rate fluctuations. Therefore, choosing between gilt funds and FDs depends on the individual investor’s risk tolerance and investment goals.
