What are Gilt funds
What are gilt funds?
Gilt funds are type of a debt mutual fund which invest in Government Securities issued by the Reserve Bank of India (RBI) on behalf of the government. Since these are govt securities the Credit risk involved in these funds are considered as safest.
Gilt funds are different types based on maturity. It can be medium to long duration maturity period. Depending on requirements Govt of India can borrow money from RBI by paying interest on borrowing which is normally related to the yield maturity for that period.
What are the risks in gilt funds?
With the recent Franklin Templeton debt fund issue , investors are worried about their investments in debt funds and asking Are debt funds safe?
So are gilt funds safe? Yes gilt funds are safe to invest from a credit risk perspective as the gilt mutual funds only invest in govt securities.
These funds are very good if you invest in these funds for a medium to long term maturity. But these funds are very risky for short term maturity. The Gilt funds are highly dependent on the interest rate cycle. i.e. Gilt funds excellently well in a falling interest scenario but they perform the worst in a rising interest scenario.
How do I invest in gilt funds?
There are a number of gilt mutual funds available in the market. You can invest in any gilt mutual funds directly purchasing from the AMC or via a mutual fund broker or via apps like PayTM Money, Grow etc.
which gilt funds are available in India?
Below are some gilt mutual funds from different fund houses with their historic returns
| Scheme Name | 1Y | 2Y | 3Y | 5Y |
| SBI Magnum Gilt Fund - Direct Plan - GrowthGilt Fund | 19% | 13% | 10% | 10% |
| ICICI Prudential Gilt Fund - Direct Plan - GrowthGilt Fund | 17% | 12% | 10% | 10% |
| Nippon India Gilt Securities Fund- Direct Plan - GrowthGilt Fund | 19% | 14% | 11% | 11% |
| Nippon India Gilt Securities Fund- Direct Plan - Automatic Capital AppGilt Fund | 19% | 14% | 11% | 11% |
| HDFC Gilt Fund - Direct Plan - GrowthGilt Fund | 13% | 10% | 8% | 8% |
| DSP Government Securities Fund - Direct Plan - GrowthGilt Fund | 19% | 14% | 10% | 10% |
| IDFC Government Securities Fund - Investment Plan - Direct Plan - GrowthGilt Fund | 20% | 15% | 10% | 10% |
| UTI Gilt Fund - Direct Plan - GrowthGilt Fund | 16% | 12% | 9% | 10% |
| Kotak Gilt - Investment - Direct Plan - GrowthGilt Fund | 17% | 13% | 10% | 10% |
| Kotak Gilt - Investment - PF and Trust - Direct Plan - GrowthGilt Fund | 17% | 13% | 10% | 10% |
| Franklin India Government Securities Fund - Direct - GrowthGilt Fund | 13% | 11% | 7% | 8% |
| Aditya Birla Sun Life Government Securities Fund - Direct Plan - GrowthGilt Fund | 17% | 14% | 10% | 10% |
| Tata Gilt Securities Fund - Direct Plan - AppreciationGilt Fund | 16% | 12% | 9% | 9% |
| L&T Gilt - Direct Plan - GrowthGilt Fund | 15% | 12% | 8% | 9% |
| Edelweiss Government Securities Fund - Direct Plan - GrowthGilt Fund | 16% | 12% | 9% | 9% |
If you notice from the above table Gilt mutual funds have given excellent return in 2020 as the interest rates have fallen consistent in 2020. But investors should not assume that gilt funds always give excellent returns as sometimes they give negative returns as well specially when the interest rates starts going up.
Benefits of investing in gilt funds?
- No credit risk: Since these funds invest in securities that are of high credit quality, these funds come with sovereign guarantee which is considered as the safest investment.
- Access to government investments: Being a retail investor it is not easy to invest in Govt securities directly so Gilt funds give an excellent opportunity to invest in Govt securities.
- Better returns in fixed income criteria: Gilt funds give moderate risk-free returns in medium to long term. It gives investors a pretty good option to earn a little more than conventional FD/Liquid funds.
Are gilt mutual funds better than liquid mutual funds?
Gilt mutual funds are in a separate category than liquid mutual funds. Liquid funds are seen as an investment which gives consistent returns with out worrying about any influencing factors such as interest rate. where as Gilt funds are totally dependent on interest rate cycle.
If your investment horizon is short term then you better off sticking to liquid funds but if your investment horizon is medium to long term then you can consider investing in Gilt funds.
If you are keen investor who is able take benefit of falling interest cycle(specially with whats happening in 2020) then you can get good gains out of Gilt funds in short term.
If you are interested in investing in debt funds other than Gilt funds then consider reading - What are top debt funds that people are buying and selling?
Disclaimer- Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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