Introduction to Gilt Fund

Gilt funds are credit funds that primarily invest in shares issued by the federal and local governments of India. RBI is the first point of call for the Indian government when it needs money (or loans) (RBI). Apart from being the country’s central bank, RBI serves as a government banker. It is only after borrowing from other institutions, such as insurance companies and banks, that the RBI can make loans to the federal government. The performances are strongly influenced by changes in interest rates. Consequently, the best time to invest in gilt funds is when interest rates are falling. We can define Gilt funds as investing solely in fixed-income investments made by the federal and state governments.

Benefits of Investing in Gilt Funds

The key benefits of investing in gilt funds:

Having Access to Government Bonds

Some government securities are off-limits to retail investors. Private Investors can gain Exposure from government instruments as benefits of investing in gilt funds. 

There Is No Credit Risk Involved

As the underlying securities are issued by the government, gilt funds are thought to carry little to no credit risk. Because the government will not default on its obligations, investing in gilt funds is a safe bet for conservative investors.

Exciting Returns on Investment

These Gilt funds have a reputation for delivering moderate returns with minimal risk. Individuals with short- to medium-term investment horizons can benefit from these funds.

Where to Put Your Money?

Gilt funds are credit funds that primarily invest in shares issued by the federal and local governments of India. Long-term government securities are the sole focus of gilt funds. As a result, these funds meet the needs of investors. It is important to note that they are not the same as bond funds, which may invest some of their assets in corporate bonds, which are more volatile. Despite its lower return, we can define a gilt fund as a higher asset quality than a typical equity fund. 

Things to Keep In Mind When Assessing Investment Risk

Unlike corporate bond funds, gilt funds carry no credit risk, making them the most liquid investment option. As a result, the government will make every effort to meet its responsibilities. However, interest rate risk is the main drawback of gilt funds. 

Returns

At least 12 per cent is possible with Gilt funds. Returns from gilt funds, on the other hand, are not certain and highly dependent on changes in the basic level of short-term interest rates. As a result, when interest rates are low, it makes sense to put money into Gilt funds. 

Cost

Fees for the fund manager’s salary and other expenses are included in an expense ratio, which investors pay annually. This represents a proportion of the total amount of money a fund has under management on a monthly basis. SEBI specifies a maximum expense ratio of 2.25 per cent for debt funds. The investment strategy of the manager may have an impact on the operating costs of a specific fund. If, for example, the interest rate changes, a dynamic approach would mean that you would buy and sell securities in response.

Investing Perspectives

Gilt funds invest in long-term government securities, such as bonds. Gilt fund portfolios have a three- to five-year average life expectancy. In order to invest in gilt funds, you will need an investment horizon of at least three to five years. There are Lots of benefits in investing gilt funds. 

Aspirations in Terms of Money

If you’re looking to build long-term wealth, you can benefit from investing in gilt funds by interest rate fluctuations. To earn short-term returns when the overall capital markets decline, you may want to consider putting your money in gilt funds.

Inheritance Tax

Income from your investment in a gilt fund is subject to tax. The amount of tax you pay depends on how long you keep your money invested in a gilt fund. Long-term capital gains are gains accrued over a period of three years or more (LTCG). Gilt fund investors will receive STCG and must pay income tax on it.

Nippon India Gilt Securities Fund

The Nippon India Gilt Securities Fund’s current net asset value (NAV) as of 31 March 2022 is Rs 30.9342 for the Growth option of the Regular plan.

4.16 ten cents (1 year), 7.88 per cent (3 years), 7.44 per cent (5 years) and 8.66 per cent (1 year) are its trailing returns (since launch). Category returns are 4.02 per cent (1 year), 7.44 per cent (3 years), and 6.58 percentage points for the same duration (5yr).

Conclusion

We can define Gilt funds to invest solely in fixed-income investments made by the federal and state governments. You need to look at the fund from a variety of angles when selecting one. The best mutual fund can be identified using a variety of quantitative and qualitative criteria. Keeping your financial goals, risk tolerance, and investment horizon in mind are also important considerations to make. There is a very low chance of risk and reasonable returns can be achieved by investing in gilt funds. On the basis of their 3- and 5-year returns, there are the top five gilt funds in India.