Gilt Funds: Meaning, Features, Risk and Returns

Gilt funds invest only in fixed-interest-generating securities issued by the Central and state governments. Funds are invested in government projects and other secure public initiatives.

Key Highlights

• Composition: Invests only in government securities.
• Risk: No credit risk; affected by interest rate changes.
• Taxation: Returns are taxed as per the income slab.
• Expenses: Charges are capped at 2.00%.
• Alternatives: Government securities can be bought directly through RBI Retail Direct.

How do Gilt Funds Work?

When the Government of India needs funds, the RBI issues government bonds and treasury bills to institutions such as banks, insurers, and mutual funds. Gilt funds invest in these securities and receive the principal amount back at maturity. This makes gilt funds a low-credit-risk investment option with exposure to interest rate movements.

Benefits of investing in gilt funds

The following are the benefits of investing in gilt funds:

• Interest Rate Risk: Gilt funds have no credit risk but are highly sensitive to interest rate changes.
• Expense Ratio: The TER is capped at 2.00% and declines as the fund size grows.
• Taxation: Gains are taxed as per the investor's income tax slab, regardless of holding period.
• Direct Access: Investors can buy government securities directly through the RBI Retail Direct platform without intermediary fees.

Who Should Invest in Gilt Funds?

Gilt funds invest only in government securities, making them a low-risk investment option. Unlike bond funds, they do not invest in corporate bonds, helping preserve capital while offering moderate returns. They are well suited for risk-averse investors seeking exposure to government-backed securities.

Things to consider as an Investor

As an investor, it importan look at these points to consider while investing in Gilt Funds:

• Interest Rate Risk: NAV falls when interest rates rise and gains when rates decline.
• Expense Ratio: TER is capped at 2.00% and decreases as the fund size grows.
• Taxation: Gains are taxed according to the investor's income tax slab, with no LTCG benefits.
• Direct Access: Government securities can be bought directly through RBI Retail Direct without intermediary charges.

How to Invest in Gilt Funds?

Investing in gilt funds is made paperless and hassle-free at ClearTax. You can start your investment journey by following a few simple steps:

Step 1: Sign in to ClearTax.

Step 2: Enter the investment amount and tenure.

Step 3: Complete e-KYC in under 5 minutes.

Step 4: Choose and invest in a preferred gilt fund.

Top 5 Gilt Funds in India

Investors should consider both their investment horizon and the fund's duration profile. The table below shows the performance of leading gilt funds: 

*The order of funds doesn’t suggest any recommendations. Investors may choose the funds as per their goals. Returns are subject to change.

Final Word

Sometimes, investing in gilt funds might be a tense affair. If tracking markets aren’t your thing or if you are finding it too difficult to understand, you can log onto ClearTax Invest. Invest in hand-picked funds in a hassle-free and paperless manner.