Contents
Gilt funds are considered as the most conservative fixed-income return. The funds focus primarily on securities issued called gilts. Gilt funds can be also found in India, which issues gilt securities due to its historic designation.
Gilt funds and long term debt funds are at the top in the returns chart. Some are even offering much better returns than many of the equity mutual funds. Gilt funds are giving an average return of around 8.2 percent. Some of the gilt funds are even offering an 11% return in one year.
How do Gilt Funds work?
- Whenever the Government of India needs loans it contacts Reserve Bank of India (RBI).
- Apart from being the apex bank, RBI is also a banker to the government.
- RBI lends money to the government. This money is generally lent to the RBI by entities like insurance companies, fund houses, and banks.
- In return of the loan, RBI issues government securities providing a specific tenure.
- Upon maturity, the fund house returns the government securities to RBI. And gets back money in return. For an investor, these funds can be an ideal blend of low risk and reasonable returns.
- Moreover, the returns are mostly dependent on the movement of interest rates. A falling interest rate regime should be the best time to invest in gilts funds.
Who all should Invest in Gilt Funds
- Gilt funds basically invest in government securities which are between medium to long-term horizons (3 years, 5 years & 10 years). And so, these funds are able to satisfy the security needs of investors.
- They are not the same as bond funds. Bond funds can allocate a type of assets in corporate bonds, which may be risky.
- Gilt funds invest in low-risk debt like government securities which guarantee the preservation of capital along with moderate returns.
- Comparing to a typical equity mutual fund, a gilt fund gives better asset quality, even though the returns might be relatively lesser.
- It is an ideal investment way for those investors who are risk-averse and wish to invest in government securities. Those investors who prefer capital protection over higher returns!
Things to consider as an Investor
Risk factor
- Unlike corporate bond funds, these funds are the most liquid instruments as they don’t carry credit risk.
- The main reason is that the government will never default on fulfilling its obligations.
- The main risk of the gilt funds is the fluctuating interest rate. The net asset value (NAV) of the fund drops in the rising interest rate regime. Higher interest rate leads to a fall in the prices of the underlying asset of the fund.
Returns
- These funds can generate returns of as high as 12%.
- Moreover, returns from gilt funds have no assurance and highly variable with the changes in the overall interest rates.
- It can be beneficial to invest in gilt funds when the interest rate is falling in the economy.
- When the economy as a whole faced slump gilt funds has been known to deliver higher returns than even equity funds.
Cost
- Gilt funds charge an annual fee called an expense ratio, which takes care of the fund manager’s fee and other related costs.
- This is a percentage of the fund’s average assets under management. As per SEBI specifications, 2.25% is the upper limit of expense ratio for Debt fund.
- The operating costs of a particular fund may depend on the fund manager’s investment strategy.
- Eg. A dynamic strategy means to buy and sell securities as per the changes in the interest rate.
Financial Goals
- If wealth accumulation in the medium term is your goal, then you can invest in gilt funds to ride on the interest rate volatility.
- When the overall capital markets are going downwards and you are looking for safer havens to earn short-term returns. In such a situation gilt fund is an option.
Tax on Gains
- Capital gains from your Gilt Fund are taxable. The rate of taxation is dependent on your holding period i.e. how much longer you stay invested in a gilt fund.
- A capital gain made during a period of lesser than 3 years is called Short-term Capital Gain (STCG).
- A capital gain earned over a period of 3 years or more is known as Long-term Capital Gains (LTCG).
- Investors will receive the STCG from gilt funds and he can pay the income tax accordingly.
- LTCG tax is a fixed 20% after indexation and 10% without the advantage of indexation.
How to Invest in Gilt Funds?
These are the following steps to start the investment journey.
- Sign in at Wealthbucket.
- Submit your personal details regarding the amount and period of investment
- Get your e-KYC done in less than 3 minutes
- Invest in your favorite gilt fund from amongst the specially selected mutual funds.
Top 5 Gilt Funds in India
It is necessary to examine funds from various angles, while you are selecting a fund. You can also examine funds through different quantitative and qualitative parameters. Additionally, you need to keep your financial goals, risk appetite and investment horizon in your mind.
The following table shows the top 5 gilt funds in India, based on the past 3-year returns. Investors may select the funds based on various investment horizon like 5 years or 10 years returns.
| Fund Name | Returns | ||
|---|---|---|---|
| 1 year | 3 year | 5 year | |
| ICICI Prudential Gilt Fund | 5.24 | 8.24 | 8.45 |
| Reliance Gilt Securities Fund | 3.62 | 7.97 | 8.47 |
| Canara Robeco Gilt PGS Fund | 2.27 | 7.87 | 8.22 |
| UTI Gilt Fund | 2.98 | 7.84 | 8.87 |
| SBI Magnum Gilt Fund | 2.86 | 7.76 | 9.34 |
Conclusion
Before investing, investors have to examine their risk appetite and then make a decision to invest. The funds are ideal for a reasonable high return and security. The maturity and returns of a gilt fund are higher than other mutual fund types. If a fund manager wants to extend the period of maturity in a fund, they choose to invest in gilt funds to achieve them. You should not invest in the other funds simply because of the security of the government. Make rational choices and only invest if it meets your investment criteria and helps you achieve your long-term financial goals. You should choose a fund that has performed well in the past.
To make the best profits on your money and want to know the Best Gilt Funds India. Get in touch with the team of experts at Wealthbucket where our aim is to simplify investments.
For more details regarding the various compliances that your company may need to meet. Also, visit our website Wealthbucket. In addition, to resolve your problem just give a ring at +91 9999379929. or shoot on our email at contact@wealthbucket.in.
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