Gilt Mutual Funds

What are Gilt funds? Why should we invest in them?

Gilt Funds are one of the safest type of debt mutual funds.

They invest only in treasury bills and government securities.

This is because the schemes will invest only in Government securities of various maturities / duration.

So, investors are protected from credit risk (default risk) because of the Government guarantee that comes along with it.

These schemes should be preferred by risk averse and conservative investors where safety of capital is of utmost importance than return.

When ever Government needs money, it raises by issuing Government security bonds.

Each of these bonds will have a different maturity date.

These securities pay a lower coupon or interest to reflect the low risk of default associated with them.

Long-term gilt funds invest in government securities of medium and long-term maturities.

The advantage of Gilt funds is that there is no risk of default and liquidity is considerably higher in case of government securities.

However, prices of long-term government securities are very sensitive to interest rate changes.

Gilt funds are highly volatile and their NAV rates move very sharp often mimicking as if they are an equity instrument.

Some times, their returns can be drastically negative too.

Economic factors such as Union Budget, Government spending and even US Fed rate tweaking will have an impact on the NAV of these funds.

Gilt schemes are volatile and at times could give sharp negative returns.

Hence, they cannot be used an alternative of holdings funds in the Savings Bank account.

Perhaps you can consider Liquid Mutual Fund Schemes or Short Duration Funds or Short Duration Debt Funds

Also, you may consider the Reliance ATM Card that is given by Reliance Mutual Fund.