Gilt Fund with a 10-year constant duration

Gilt funds with a 10-year constant duration are open-ended debt funds

Gilt funds are an ideal blend of low risk and reasonable returns.

Many investors usually refrain from investing in debt mutual funds because of the lucrative returns one earns from the equity mutual funds. However, at times your risk profile may compel you to think of other funds than equities such as Gilt Fund. Let’s talk about that in this article.

What is a 10-year constant duration Gilt Fund?

Gilt funds with a 10-year constant duration are open-ended debt funds that invest in fixed-interest generating government securities having a constant or fixed duration of 10 years. These funds hold a minimum of 80% of its portfolio in government securities and invest in the highest quality SOV (sovereign) rated government of India securities, which is the highest rating for any debt security to deliver good returns.  These schemes have a higher duration and are therefore highly susceptible to interest rate movement.

How do Gilt Funds Work?

These funds work like Index Funds for 10 years for government securities. When the GoI requires funds (or loans), it usually approaches the RBI, the central bank.  Then the RBI lends money to the government after borrowing from other entities such as insurance companies and banks. The RBI issues government securities having fixed tenure in exchange for the loan, to which the fund manager of a gilt fund subscribes.

Fund managers take a passive approach, and the portfolio duration is continuously maintained at 10 years; that is, these are not purchased or sold because of moving interest rates in the economy. Upon maturity, the government securities are returned by the Gilt fund and receive money in return.

When to invest in Gilt funds?

Gilt funds are an ideal blend of low risk and reasonable returns. As the performances are highly dependent on the movement of interest rates, the best time to invest in gilt funds is when the interest rate is falling. These funds do extremely well in a falling interest rate scenario and outperform other debt funds giving double-digit returns. However, if interest rates increase sharply, these funds will not perform well, and you can expect single-digit returns.

Who Should Invest in Gilt Funds?

It is an ideal investment for investors who are risk-averse and want to invest only in government securities with medium to long-term investment horizons that is at least 3-4 years and ideally 8-10 years. As these investments are directed towards government-funded projects and other expenses, these satisfy the security needs of investors. It is suitable for anyone looking for long-term allocation to debt for returns better than FD.

Things to know before you invest


Gilt funds are the most liquid and low-risk instruments that don’t carry credit risk as the government tries its best to fulfill its obligations. However, these primarily face an interest rate risk. The net asset value (NAV) of the fund reduces sharply when the interest rate increases.


Gilt funds are capable of preserving capital along with moderate returns that can be as high as 12%. Still, returns are not guaranteed and are highly variable with the changes in the overall interest rates. Usually, the return is lower than equity funds. Hence, it would be profitable to invest in Gilt funds when the whole economy faces a slump and the interest rates are falling. Gilt funds can still deliver higher returns than even equity funds.


An annual fee known as expense ratio is charged, the upper limit of which is 2.25% as per SEBI specifications.  At present, none of the gilt mutual funds have an exit load.


Investors pay the STCG tax for a capital gain made for less than 3 years as per the IT slab. A time horizon of three years makes these funds more tax-efficient, i.e., a flat LTCG tax 20% with indexation benefits.

Last words…

Keep your financial goals, investment horizon, and risk appetite in mind before investing. But, there are different quantitative and qualitative parameters to determine the best fund, which makes investing a tense affair. Like, in the current economic scenario, interest rates have already fallen significantly. Therefore, to know whether these funds will be able to sustain their past performance in the next 2 to 3 years, take the help of your financial advisor.

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 / Enquire