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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?

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.