Gilt Funds with 10 Year Constant Duration

Gilt funds with 10-year constant duration are debt funds that invest in government securities, having a constant maturity of ten years. It puts money in central and state government securities with a Macaulay duration of 10 years. It could offer a higher return as compared to medium duration funds.


Introduction to Gilt Funds with 10 Year Constant Duration

Gilt funds with 10-year constant duration are open-ended debt schemes that invest at least 80% of the total assets in government securities, according to SEBI norms. It has a Macaulay duration for the portfolio of 10 years or more.
Gilt funds with 10-year constant duration perform well in a falling interest rate scenario. It could offer a higher return as compared to most debt funds. It has a sovereign rating which makes it a safe investment.


Top 10 Gilt Funds with 10 Year Constant Duration

The table below shows the top-performing gilt funds with 10-year constant duration based on 3-year and 5-year returns:

Fund 3-Year Performance 5-Year Performance Link

Who Should Invest in Gilt Funds with 10 Year Constant Duration?

You may consider investing in gilt funds with 10-year constant duration for the long-term. It is suitable for investors who seek minimum risk with their investments. Gilt funds with 10-year constant duration invest in government securities with a fixed duration of 10 years. It may offer a higher return during a falling interest rate scenario.
Gilt funds with 10-year constant duration invest in government securities and have a sovereign rating. It does not default on principal and interest payments on government bonds. You could invest in these funds if you are a conservative investor.
You could diversify your portfolio through gilt funds with 10-year constant duration. It may offer a higher return as compared to bank fixed deposits. It offers tax-efficient returns as compared to fixed deposits for investors in the higher income tax brackets.


Taxability of Gilt Funds with 10 Year Constant Duration

Gilt funds with 10-year constant duration are taxed in a similar way as debt funds. The short-term capital gains after a holding period of fewer than three years are taxed according to your income tax bracket.
The long-term capital gains after a holding period of three years or more are taxed at 20% with the indexation benefit. The benefit of indexation helps you to increase the purchase price of the gilt fund to adjust for inflation.
The dividends you earn from gilt funds with 10-year constant duration are added to your taxable income. You may have to pay taxes according to your income tax bracket. Until the Union Budget 2020, dividends were tax-free in the hands of investors as the mutual fund house paid the dividend distribution tax (DDT).


Risks associated with Gilt Funds with 10 Year Constant Duration

Gilt funds with 10-year constant duration have a higher interest rate risk as compared to medium and low duration funds. It is sensitive to interest rate fluctuations as it invests mainly in government bonds of a longer Macaulay duration. Gilt funds with 10-year constant duration are affected by the rising interest rate scenario as bond prices fall.
Gilt funds with 10-year constant duration are vulnerable to interest rate risk. A sharp rise in interest rates could lead to negative returns. It is riskier as compared to low and medium duration funds that have a lower Macaulay duration.


Things to consider before investing in Gilt Funds with 10 Year Constant Duration

  • Investment Objectives: You may put money in gilt funds with 10-year constant duration, only if you can stay invested for the long-run.
  • Time Horizon: You could consider investing in these funds with a time horizon of at least ten years.
  • Risk profile: Gilt funds with 10-year constant duration are affected by interest rate fluctuations as they invest in government securities of a longer duration.
  • Return: Gilt funds with 10-year constant duration may offer a higher return as compared to low and medium duration funds. It invests in bonds of a longer residual maturity (Macaulay duration) and may generate a higher return in a falling interest rate scenario.
  • Expense Ratio: You could consider checking the expense ratio of the gilt fund with 10-year constant duration. You may opt for a fund with a lower expense ratio.

Advantages of investing in Gilt Funds with 10 Year Constant Duration

The following are benefits of investing in high-risk mutual funds:

  • It could perform well in a falling interest rate scenario and offer a higher return as compared to many debt funds.
  • It offers a higher tax-efficient return as compared to bank fixed deposits.
  • You could consider diversifying your portfolio with gilt funds with 10-year constant duration. It could protect your portfolio from volatility in the stock market.
  • You enjoy the double benefits of return with no credit risk.