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Gilt

What is Gilt Fund?

Gilt funds are debt funds that invest in securities of state and central government which generate fixed interest. The invested funds are deployed towards building infrastructure and for other government expenses.
Whenever the government requires funds or loans, the Reserve Bank of India (RBI) is approached. RBI lends money to the government after receiving it from other institutions such as banks or insurance firms.
The RBI issues government securities which have a specified tenure. The fund manager of a gilt fund subscribes to these. Once these securities mature, the gilt fund returns the government securities and receives money. Gilt funds are suitable for conservative investors looking for low risk and reasonable returns.

How to compare gilt fund to invest in?

  • Rankings

    Mutual funds are often ranked by a credible organization. Similarly, Gilt Funds are also ranked by similar organizations. Rankings can vary from one star to five star with the latter being the highest ranking.

  • Assets Under Management

    A Gilt fund with higher Assets Under Management could assumed to be far more credible than its competitors. Higher AUM could mean that the fund either attracts larger number of investors or larger investments or both.

  • Returns achieved

    You can evaluate the returns offered by Gilt funds across one, three, five and seven years. Depending on your investment objective, you can check which fund has offered the most suitable returns within your desired time period. Suppose you need to park your funds for an even which may arise within three years, you can check out gilt funds which have offered the best returns over a three year period.

Gilt edged securities V/s Gilt Mutual Funds

Gilt edged securities enable you to invest directly in government securities through bankers or dealers. You will be required to open a CSGL (Secondary constituent’s subsidiary general ledger) account with your bank to hold the government securities in an electronic form.
If you wish to invest in a Gilt mutual fund, the process is similar to investing in any other mutual fund scheme. You can either invest directly or through a distributor.
Gilt securities and mutual fund investments are taxed differently. Due to tax implications it is better to hold gilt edged securities if your holding period is less than three years. Gilt funds are suitable if you are holding for more than three years.