InvestorQ : What are gilt funds? How do they work?
Nishita Gala made post

What are gilt funds? How do they work?

Anusha Savla answered.
3 years ago

Gilt funds are funds which invest in a mix of government securities of varying maturities.

Gilt funds are government securities issued by the Reserve Bank of India (RBI) having a specific tenure, in exchange for money to be lent to the government. This is because the RBI acts as a banker to the government and lends it money, as well.

On maturity, the gilt fund returns the government securities and receives money in return.

A gilt fund, from an investor’s point of view, is an ideal mix of low risk and reasonable returns.

Do note, however, that returns earned on gilt funds are highly dependent on the movement of interest rates.

Returns from a gilt funds are highly dependent on the change in interest rates as there is an inverse relationship between bond prices and interest rates. Hence, when the interest rate falls, prices of government securities go up, benefiting the performance of gilt funds and vice versa. Gilt funds also give good returns when other asset classes like equity are not doing well, as debt and equity markets are inversely linked (when one does well, the other generally drops).

Thus, it is important to note that a falling interest rate regime is the best time to invest in gilt funds.

Here are the top 10 gilt funds available in the market:

1. Reliance Gilt Securities Fund

2. Edelweiss Government Securities Fund

3. SBI Magnum Constant Maturity Fund

4. BNP Paribas Government Securities Fund

5. Reliance Gilt Securities Fund

6. IDFC Government Securities Fund - PF Plan

7. SBI Magnum Gilt Fund

8. ICICI Prudential Gilt Fund - Treasury Plan - PF Option

9. ICICI Prudential Gilt Fund - Investment Plan - PF Option

10. Aditya Birla Sun Life Government Securities Fund