Comparte Capital Investment

Gilt free Gilt mutual funds

Gilt funds are fixed-interest generating securities of the state and central governments.

This fund can give high returns during a low-interest rate


With so many great mutual fund investment options, many investors may get confused to make the right choice to invest their money. An investor needs to understand the features of each fund and what it offers before choosing the perfect scheme that fulfills their financial needs. They must understand the importance of diversification and how it helps to make a strong portfolio. We know there are different types of mutual funds available for the investors to invest their money. In this post, we can understand what gilt funds are and things to consider before choosing it to invest.

Gilt Funds

Gilt funds are suitable for those who look for low-risk investment choices. These types of mutual funds are different from other schemes as these are used to make investments in Government securities.  The money in gilt funds invested in central and state government securities are used for nation-building and other government expenses. Investors can earn secure returns by investing in gilt funds.

Gilt funds are fixed-interest generating securities of the state and central governments. The money invested in this fund uses mainly for infrastructure building and other expenses related to government. However, change in the interest rates and other related factors may lead to the fluctuation of the NAV of these mutual funds.  High-interest rate risk based on its maturity profile is another issue related to gilt funds. If the maturity profile of this scheme is higher, then its interest-rate risk is also higher.

Things to consider before investing in gilt funds

Although the returns from gilt funds are relatively less, it offers high asset quality compared to traditional equity funds. However, it is a fine investment option for those who look to invest in government securities and risk-averse investors. Let’s check the things to consider before investing in gilt funds:

Financial goals:  If your main objective to invest is generating income over a medium-term, you can invest in a gilt fund based on its interest-rate volatility. These funds are ideal for earning short-term returns, particularly when the capital markets going downwards generally.

Risk factors: Gilt funds are very sensitive to changes in interest rates. This fund can give high returns during a low-interest rate, but it may not work well and even offer negative returns during a high-rate scenario. Even if these funds are liquid instruments and have low-risk, investors need to consider its interest-rate risk before investing in it.

Returns: People choose gilt funds to invest because of its capacity to generate returns up to 12%. At the same time, the returns from these funds may vary based on the changes in the overall interest rates. Besides, they do not guarantee high returns. Choose gilt funds to invest only when its interest rates fall or when interest rate is at its peak and will start to fall.

Cost: Another thing to consider while you invest in a gilt fund is its costs. As an investor, you need to pay an annual fee to manage your fund and other related costs (expense ratio). The upper limit of expense ratio to invest in debt funds as per the SEBI rules is 2.25%, but the operating costs of a fund may vary based on the investment strategy of a fund manager.

Other things to consider:  Investors also consider the investment period and the taxation rates before investing in gilt funds. These funds are available for medium to long-term periods with an average maturity usually varies from three to five years.

A gilt fund with an investment horizon of a minimum three to five years is the better choice for those who look for high returns.  These funds are suitable for those who look for risk-free investment options as they mainly invest in high-quality government securities. Since these securities ranging from medium to long-term options, such funds can fulfill the security needs of different investors.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh