A Gilt fund is a fund that pools investors’ money and invests in the securities issued by the government, said to be backed by a sovereign guarantee.
Gilt funds invest in fixed-income securities, which pay a fixed interest rate and repays the principal sum at maturity. Gilt funds are characterized by low risk and low returns.
Difference between Gilt Funds and Debt fund
Gilt funds invest in Government securities, and there is no risk of capital erosion in gilt funds. There is no change in interest rates hence stable returns. They generate low returns as compared to debt funds.
Debt funds have Interest rate risk, liquidity risk, and credit risk. They basically involve high risk, thereby having the potential of giving above-average returns. The interest rates are volatile. Some examples of debt funds are corporate bonds, treasury bills, money market securities. Debt funds are further subdivided into short-term and long-term debt funds. The investment scheme can be customized as per the investor’s requirement. The volatility of interest rates depends on various factors such as economic policy, the performance of the company, and the monetary policy of RBI.
Some of the top Gilt Funds in India are: –
- HDFC Gilt Fund
- SBI Magnum Gilt Fund
- Axis Gilt Fund
- UTI Gilt Fund
- ICICI Prudential Gilt Fund
Is it safe to invest in a Gilt Fund?
Yes, As it is backed by a sovereign guarantee, it’s a perfect combination of low risk and low returns. They do get affected by the change in interest rates, but in the long term, they are profitable and safe means of investment.