Partner With Us NRI

Open Free Trading Account Online with ICICIDIRECT

Incur '0' Brokerage upto ₹500

All you need to know about Gilt funds!

1 Mins 05 Aug 2022 0 COMMENT

Gilt funds are types of debt mutual funds. These funds invest in central or state government securities with medium to long-term horizon. They are usually considered safe investments, particularly when interest rates are dropping.

Low risk:

Unlike other debt funds, which might allocate part of the fund to risky corporate bonds, gilt funds invest in low risk debt instruments offered by the government, ensuring that investment is preserved while offering moderate returns. This makes it an ideal investment for risk averse investors who prefer government guarantees. However, this does not mean there is no risk since fluctuating or falling interest rates can impact the returns dramatically, and the net asset value or NAV can drop significantly in case of rising interests. So, the best time to buy gilt funds is when interest rates are headed south, or when the market is going through a slump. So instead of past returns, look out for indicators of a rate cut, like slow GDP growth and possibility of cuts in corporate earnings or a reduction in the Index of Industrial Production. Keep in mind that you will get low rate of returns during a stable market period or if the interest rates go up.


Gilt funds are still far more liquid instruments than corporate or other bonds because they don’t have the corresponding credit risks, with the government unwilling to lose face by defaulting on its commitments. You should have a slightly long-term investment window, ranging from three to five years, to gain maximum benefits from these funds. But though gilt funds have often returned 7 to 9 per cent returns p.a., this is not guaranteed, and varies according to the prevailing interest rates cycle.


Similar to other mutual funds, when you buy gilt funds, you will be charged an annual fee called an expense ratio to manage the funds. The expense ratio is capped at 2.25 per cent by the Securities and Exchange Board of India or SEBI for all types of mutual funds. However, most of the GILT funds expense ratio remains in the range of 0.5% - 1.5%.

So, an investor should consider the expense ratio while taking investment decisions.


You are liable for capital gains tax based on your investment period, with short term capital gains tax for holding less than three years, and long-term capital gains rates, which is far less especially when indexed, for anything above three years. And as always, remember to base your investment plans on your financial goals, risk appetite and investment horizon.

Disclaimer: The contents herein mentioned are solely for informational purpose and shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.