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Gilt Funds – Whether To Invest Or Not?


When retail investors think of investing there money into stocks or bonds, the very first thing that they would like to ensure is the security of funds. So to cater the needs of retail investor, mutual fund houses come up with a fund which offers security of funds with good returns i.e Gilt Fund.

Gilt Funds are securities issued by central government, so investment under these funds are considered to be less risky then corporate bonds and it offers better returns than direct investment. Under this scheme, asset management companies invest exclusively under government securities which includes central government dated securities, state government securities and treasury bills.

There is two major reason which makes Gilt fund investment better investment then direct investment is-

  • Under gilt fund investment, fund managers invest under variety of government securities with  yielding varying rate of return whereas in direct investment retail investors invest in one or two types of securities.
  • The minimum investment limit under government securities is Rs 5 Crore, which make retail investors invest under these securities through gilt fund where minimum investment limit is Rs 5000 only.

gilt funds


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There are some disadvantages of gilt funds like:-

  • Gilt fund are not 100% secure,
  • Gilt fund get directly affected by the change in the interest rates which means increase in interest rates decreases the price of securities, this makes returns from gilt funds highly volatile.
  • Gilt fund are quite il-liquid as this type of funds are not actively traded like other securities.

According to the CRISIL Mutual Fund ranking, Gilt funds performed best out of 22 mutual fund categories. By offering best returns Gilt Funds outperformed both equity and debt oriented categories.

If you are an investor and looking for an investment which offers you security with reasonable returns then you can invest your money in gilt funds for one year or so. But investment under gilt fund can offer you the most when interest rates falls as there is an inverse relationship between interest rates and price of G-sec. so if you think interest rates will fall in next few months then go for it. But if next interest cut is not expecting in near future then you can avoid investing in gilt funds and go for Dynamic bond funds.

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