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What are gilt funds?

Suggest the best gilt funds to invest for one year. How much can I expect to get from gilt funds? Are there better option than gilt fund?

Mridul Agrawal

Gilt funds are those mutual fund schemes which are floated by asset management companies or AMCs with exclusive investments in various government securities only. Government securities include central government securities, state government securities and treasury bills.

The first gilt fund in India was set up in December 1998. The gilt funds provide to the investors, the safety of investments made in government securities and better returns than direct investments in these securities through investing in a variety of government securities yielding varying rate of returns.

A few facilities provided by the RBI, with the aim to create a wider investor base, to gilt funds are as follows-

  1. Liquidity support - The Reserve Bank of India provides liquidity support to gilt funds by way of reverse repurchase agreements (reverse repos). The objective of extending liquidity support to dedicated gilt funds is to support short-term liquidity requirements of such mutual funds.
  2. Funds transfer facility: The gilt funds are given the facility of transfer of funds from one center to another under the Remittance Facility Scheme of the Reserve Bank. The gilt funds are also given the facility of clearing of cheques arising out of government securities transactions, tendered at the Reserve Bank counters.
  3. Access to call market: Gilt funds can access the call money market as lenders.
  4. Ready forwards: The Reserve Bank of India will also recommend to the Government of India to permit the gilt funds to undertake ready forward transactions in Government securities market.

Kavita Soni

Gilt funds are open ended mutual funds that invest only in government securities. Government securities(G-secs) can be of medium or long-term tenure.

Features of Gilt funds are:

  • Invest only in high quality and low risk G-secs debt instruments
  • Safer than other debt instruments
  • Preferred by risk averse and conservative investors
  • Returns are comparatively low as compared to other debt asset classes
  • Returns are linked to interest rates
  • Different maturity profiles (short, medium or long term)

In case of Gilt funds, lower interest rates lead to higher price of government securities and hence more benefits to gilt funds investments. Please note that gilt funds differ from bond funds because bond funds invest in corporate bonds, G-secs and money market instruments.

Advantages provide by gilt funds include:

  • No credit risk
  • Guarantee of capital protection
  • Easier avenue for investing in G-secs
  • Moderate returns in short to medium term

Most of the investors invest in medium and long term gilt funds. However, as changes in interest rates are volatile, short or medium term gilt funds will result in quicker cash flows for investors. The minimum average maturity period for long-term gilt funds is 3 years and the maximum is 12 years. Hence it is advisable that an investment horizon of 3-5 years is suitable for investment in gilt funds.

Explore the top category Gilt Funds here!


Gilt funds are mutual fund schemes floated by asset management companies. These invest in several types of long and medium term government securities in addition to corporate debt.

Gilt funds are the most liquid of all instruments in the debt market and have very low credit risk. However, they do carry an interest rate risk. A gilt fund ensures better asset quality but with comparatively lower returns. Gilt funds are suitable for those investors who understand the debt markets well and are risk averse. These funds can be of two types- conventional gilts and index linked gilts.

Reasons to invest in gilt funds:

  • Lower fiscal deficit
  • Lower inflation
  • Indian economy is structurally strong
  • Accommodative monetary policy stance of RBI

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