What Is Gilt Fund

What Is Gilt Fund

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.


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:

  1. Choose the Gilt Fund: Research and choose a gilt fund that suits your investment objective and risk appetite.
  2. 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.
  3. 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.
  4. Payment: Make the payment through any of the accepted online payment methods.
  5. 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:

  1. 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.
  2. 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. 

ParametersGilt FundDebt Fund
ObjectiveTo invest in government securitiesTo invest in a mix of government and corporate bonds
RiskLow (Government-backed)Moderate to High (Depends on Credit Quality)
ReturnsRelatively stable and generally lowerPotential for higher returns with higher risk
InvestmentPrimarily in government securities (gilts)Diversified across government and corporate bonds
Credit QualityTypically high credit quality (backed by the government)Varies depending on the quality of underlying bonds
Interest Rate SensitivityHigh sensitivity to interest rate changesModerate sensitivity to interest rate changes
LiquidityGenerally high liquidity due to active tradingLiquidity varies depending on the underlying bonds
Investment HorizonSuitable for long-term investorsSuitable for short to medium-term investors
Risk FactorsInterest rate risk and reinvestment riskCredit risk, interest rate risk, and reinvestment risk
Investor ProfileConservative investors seeking stable returnsInvestors 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 NameReturns (%) – 1 YearReturns (%) – 3 YearsReturns (%) – 5 Years
SBI Magnum Gilt Fund9.03%5.14%8.82%
HDFC Gilt Fund7.43%3.82%6.83%
ICICI Prudential Gilt Fund9.68%5.28%8.57%
DSP Government Securities Fund7.94%4.76%8.93%
Nippon India Gilt Securities Fund8.47%4.14%8.59%

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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.
  • Invest in Glit Funds with Alice Blue. They offer a direct platform that is easy to use and has no broker fees.

Gilt Mutual Funds – FAQs  

1. What Is Gilt Fund?

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.

2. What are G SEC mutual funds?

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.

3. How does a gilt fund work?

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.

4. What is the interest rate of gilt funds?

Here are the best gilt funds in 2024:

Fund NameInterest Rate
DSP Government Securities Fund8.94%
SBI Magnum Gilt Fund8.82%
Edelweiss Government Securities Fund8.59%

5. What is the minimum investment in gilt fund?

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.

6. Is a gilt mutual fund taxable?

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.

7. Is it good to invest in gilt funds?

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.

8. Are gilt funds better than FD?

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.

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