Gilt Mutual Funds

Gilt funds are the debt funds that invest in Government of India securities. The Government issues these securities when it needs money to finance a particular project. The interest or coupon rate and maturity period of these securities vary. The Government Securities are issued by the Reserve Bank of India (RBI) on behalf of the Government. View More

Gilt funds do not invest in corporate securities, thus reducing risk to a greater extent. Gilt funds have a good track record: Like a savings account, fixed deposits, and recurring deposits, Gilt funds have a good track record of lower risk with higher Gilt funds returns than other investment options. The market risk of Gilt Funds is reduced because of the diversification that comes from investing in many securities and across a number of issuers. The credit risk is also reduced because the Government is unlikely to default on its debt obligations.

Best Gilt Mutual Funds

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Who Should Invest in Gilt Mutual Funds?

Here is a list of investors who should invest in Gilt Funds:

  • Investors who want a low-risk investment are content to leave their capital in Gilt funds for a long time. Investors planning for the long term: Like a savings account, fixed deposits, and recurring deposits, Gilt funds have a good track record of lower risk with higher returns than other investment options.

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  • Gilt funds can also be used as an additional source of income by topping up your monthly SIPs over long periods of time.
  • Investors looking to protect their capital, especially in uncertain economic times or when the markets are volatile.
  • Investors who have a large portfolio so as not to put a large percentage of their capital in one fund.
  • Investors who like to diversify their portfolio.
  • Investors looking for a portfolio that can be actively managed, with buy and sell decisions taken on a regular basis.
  • Investors who have limited investment time and a set goal: Gilt funds have been one of the preferred investments for long-term goals. Therefore, they are an ideal choice for investors who want to invest on a regular basis. Being a debt instrument, you need not worry about the equity markets being volatile.
  •  Investors who don’t want to worry about issues like market timing: Gilt funds are an ideal option for investors that do not want to worry about timing the markets but rather would like an assured return.

Features of Gilt Mutual Funds:

  • Gilt funds have features like those of fixed deposits and recurring deposits. However, unlike fixed deposits or recurring deposits, gilts do not pay the interest during the period between the date of subscription and maturity.

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  • The interest on gilts is levied tax-free when invested for a minimum period (five years) and a maximum period (ten years). The interest rate paid by the government on gilts varies from year to year from 1% up to 7%. Gilt fund returns are also subject to inflation so that investors get more income every year as prices continue to rise. This increase in yield means that gilt funds tend to outpace fixed deposit returns over a certain period of time.
  • Payment of interest on gilt funds is made at maturity.
  • During the life of a gilt, the value of the security held by an investor typically varies from -10% to +15%. The total return over a period will depend on the interest rate paid by the government and other factors such as market volatility.
  • Gilt funds are also known as variable and inflation-linked securities.

Factors to consider while investing in Gilt Funds

Here is a list of factors you can consider before investing in Gilt funds.

Risk

Before selecting a gilt fund for investments, you must consider your risk appetite and associated risk. Gilt funds are liquid instruments that come with minimal risk. View More

This is because these funds are floated in the market by the Government. The Government tries its best to fulfil the obligations of the funds. While there are no credit risks, gilt funds come with interest rate risks.

When the interest rates increase for the funds, the NAV tends to fall sharply, impacting the fund’s performance.

Returns

Returns are another factor that you must consider before picking a gilt fund for investment. The interest rates of a gilt fund can go up to 12%. However, the interest income is not guaranteed, and the rate keeps fluctuating. Therefore, you should try to invest in gilt funds when the interest rates are coming down.

The best thing about investing in gilt funds is that during an economic slump, it delivers decent returns, sometimes even greater than equity funds.

Cost

Gilt funds come with an expense ratio. You need to pay an annual fee to compensate the fund managers. You must check a gilt fund’s operating cost before investing in it. As per SEBI, the cost cannot go beyond 2.25%. However, it might change depending on the investment strategy deployed by the fund manager.

Horizon of Investments

Most gilt funds are medium and long-term funds. On average, the maturity period of a gilt fund varies from 3 years to 5 years. Therefore, these funds might not be ideal if you are looking for short-term gains. You must have a horizon of 3 to 5 years to invest in these funds.

Financial Goals

You need to set your financial goals before investing in gilt funds. If you are looking for high returns, equity funds would be your better choice. However, if you want a wealth gain over the medium term, you can invest in gilt funds. You can bank on the interest rate volatility and hope the market will favour you. Also, if safe investments are your priority, you must invest in a gilt fund.

Taxes

Taxes have a significant impact on your capital gains. The tax rate depends on the duration for which you hold the security. Gilt funds promise short-term capital gains, so you must pay the taxes accordingly. Also, if you hold the fund for more than three years, a long-term capital gains tax of 20% will be applicable.

Taxability of Gilt Funds

  • Gilt funds are considered capital asset that is not liable to income tax. This means that investors need not file any tax returns every year on their investment in gilts.

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  • The interest earned on gilt funds is also tax-free if invested for a minimum period of five years and a maximum period of 10 years. Moreover, the interest earned on gilt funds remains exempt from Income-tax (I-T) when the investment is held for a period of five or more years.
  • If an investor does not invest in Gilt funds for a minimum of five years, then such earnings are considered other income and subject to tax at the applicable rate.
  • The redemption value of Gilt funds is not included in the income of the investor and hence is not liable to I-T. However, if an individual invests in a gilt fund for less than five years, but the fund maintains an average maturity of more than five years, then such earnings are subject to tax at the applicable rate.

Risks Involved With Gilt Funds

1) Gilt funds carry risks similar to that of corporate securities. These include the risk of default and interest rate risks. View More

2) Gilt funds are subjected to taxation by the Income Tax Act. Investors would be eligible for deduction under section 80C or any other applicable sections up to 50% of their total income, thus making it cost-effective in the long run.

3) Gilt funds are subjected to capital gains tax if they are sold before maturity. They can be sold before the maturity date only if one incurs a loss on them, whereas there is a lock-in period of 3 years from the date of allotment, which prohibits early withdrawal.

4) Gilt funds are susceptible to interest rate movements in the economy. Therefore, a rise in the interest rates would lead to a fall in the value of gilts. However, the impact can be less when compared to corporate bonds since the Government of India backs these funds.

5) From time to time, some other risks can result from a change of economic environments created by falling stock markets and other macro factors, which affect gilt fund investments as well.

Advantages of Gilt Funds

1) High Liquidity: Compared to Debt instruments like Treasury Bills and Fixed Deposits, Gilt funds offer better liquidity than similar duration instruments. In addition, since gilts do not represent interest payments at the time of maturity, they are highly liquid investments. View More

2) Tax Exempt: Gilt funds are exempt from tax, whereas T-Bills are taxable. Thus, even if one has higher tax liability on their income, the gilt funds can invest in tax-saving assets, like fixed deposits and recurring deposits.

Nascent India offers a range of debt instruments, like Gilt funds. We have detailed the salient features of a few schemes listed in this article:

3) Interest rate: Gilt funds are typically fixed-term instruments with a maturity period of 10 years or more. An investment in gilt funds is usually made for a fixed-term period of 10 years or more.

4) Maturity Period: The maturity period depends on the term lengths offered by the state governments and some other issues related to coupon rates, Gilt funds return, etc.

Popular Gilt Mutual Funds

  • Fund Name
  • Min SIP Investment Amt
  • AUM (Cr.)
  • 3Y Return

SBI Magnum Gilt Fund – Direct Growth is an Gilt scheme that was launched on 03-01-13 and is currently under the management of our experienced fund manager Dinesh Ahuja. With an impressive AUM of ₹7,195 Crores, this scheme's latest NAV is ₹60.0391 as of 15-09-23.

SBI Magnum Gilt Fund – Direct Growth scheme has delivered a return performance of 7.9% in the last 1 year, 5.7% in the last 3 years, and an 9.3% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Gilt funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹7,195
  • 3Y Return
  • 7.9%

ICICI Pru Gilt Fund – Direct Growth is an Gilt scheme that was launched on 02-01-13 and is currently under the management of our experienced fund manager Rahul Goswami. With an impressive AUM of ₹4,163 Crores, this scheme's latest NAV is ₹95.1081 as of 15-09-23.

ICICI Pru Gilt Fund – Direct Growth scheme has delivered a return performance of 8.5% in the last 1 year, 6.1% in the last 3 years, and an 8.7% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Gilt funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹4,163
  • 3Y Return
  • 8.5%

DSP 10Y G-Sec – Dir Growth is an Gilt Fund with 10 year Constant duration scheme that was launched on 26-09-14 and is currently under the management of our experienced fund manager Vikram Chopra. With an impressive AUM of ₹51 Crores, this scheme's latest NAV is ₹19.1338 as of 15-09-23.

DSP 10Y G-Sec – Dir Growth scheme has delivered a return performance of 7% in the last 1 year, 3.3% in the last 3 years, and an 7.5% since its launch. With a minimum SIP investment of just ₹100, this scheme offers a great investment opportunity for those looking to invest in Gilt Fund with 10 year Constant duration funds.

  • Min SIP Investment Amt
  • ₹100
  • AUM (Cr.)
  • ₹51
  • 3Y Return
  • 7%

AXIS Gilt Fund – Direct Growth is an Gilt scheme that was launched on 01-01-13 and is currently under the management of our experienced fund manager Devang Shah. With an impressive AUM of ₹216 Crores, this scheme's latest NAV is ₹23.1313 as of 15-09-23.

AXIS Gilt Fund – Direct Growth scheme has delivered a return performance of 6.2% in the last 1 year, 5% in the last 3 years, and an 7.5% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Gilt funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹216
  • 3Y Return
  • 6.2%

Aditya Birla SL Govt Securities Fund-Dir Growth is an Gilt scheme that was launched on 01-01-13 and is currently under the management of our experienced fund manager Bhupesh Bameta. With an impressive AUM of ₹1,457 Crores, this scheme's latest NAV is ₹74.8238 as of 15-09-23.

Aditya Birla SL Govt Securities Fund-Dir Growth scheme has delivered a return performance of 7.1% in the last 1 year, 5.2% in the last 3 years, and an 8.9% since its launch. With a minimum SIP investment of just ₹1,000, this scheme offers a great investment opportunity for those looking to invest in Gilt funds.

  • Min SIP Investment Amt
  • ₹1,000
  • AUM (Cr.)
  • ₹1,457
  • 3Y Return
  • 7.1%

LIC MF Gilt Fund – Direct Growth is an Gilt scheme that was launched on 01-01-13 and is currently under the management of our experienced fund manager Marzban Irani. With an impressive AUM of ₹45 Crores, this scheme's latest NAV is ₹56.928 as of 15-09-23.

LIC MF Gilt Fund – Direct Growth scheme has delivered a return performance of 6.2% in the last 1 year, 4.5% in the last 3 years, and an 7.6% since its launch. With a minimum SIP investment of just ₹10,000, this scheme offers a great investment opportunity for those looking to invest in Gilt funds.

  • Min SIP Investment Amt
  • ₹10,000
  • AUM (Cr.)
  • ₹45
  • 3Y Return
  • 6.2%

Kotak Gilt Invest – PF & Trust Plan – Direct Growth is an Gilt scheme that was launched on 01-01-13 and is currently under the management of our experienced fund manager Abhishek Bisen. With an impressive AUM of ₹2,473 Crores, this scheme's latest NAV is ₹96.4316 as of 15-09-23.

Kotak Gilt Invest – PF & Trust Plan – Direct Growth scheme has delivered a return performance of 8.1% in the last 1 year, 5.7% in the last 3 years, and an 8.4% since its launch. With a minimum SIP investment of just ₹100, this scheme offers a great investment opportunity for those looking to invest in Gilt funds.

  • Min SIP Investment Amt
  • ₹100
  • AUM (Cr.)
  • ₹2,473
  • 3Y Return
  • 8.1%

Edelweiss Govt Securities Fund – Dir Growth is an Gilt scheme that was launched on 13-02-14 and is currently under the management of our experienced fund manager Dhawal Dalal. With an impressive AUM of ₹136 Crores, this scheme's latest NAV is ₹22.2955 as of 15-09-23.

Edelweiss Govt Securities Fund – Dir Growth scheme has delivered a return performance of 6.2% in the last 1 year, 5.7% in the last 3 years, and an 8.8% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Gilt funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹136
  • 3Y Return
  • 6.2%

Bandhan G Sec Fund – Invst Plan – Direct Growth is an Gilt scheme that was launched on 02-01-13 and is currently under the management of our experienced fund manager Suyash Choudhary. With an impressive AUM of ₹1,453 Crores, this scheme's latest NAV is ₹32.4346 as of 15-09-23.

Bandhan G Sec Fund – Invst Plan – Direct Growth scheme has delivered a return performance of 7% in the last 1 year, 4.7% in the last 3 years, and an 8.8% since its launch. With a minimum SIP investment of just ₹1,000, this scheme offers a great investment opportunity for those looking to invest in Gilt funds.

  • Min SIP Investment Amt
  • ₹1,000
  • AUM (Cr.)
  • ₹1,453
  • 3Y Return
  • 7%

Nippon India GSF – Direct Growth is an Gilt scheme that was launched on 02-01-13 and is currently under the management of our experienced fund manager Pranay Sinha. With an impressive AUM of ₹1,401 Crores, this scheme's latest NAV is ₹36.8442 as of 15-09-23.

Nippon India GSF – Direct Growth scheme has delivered a return performance of 7.1% in the last 1 year, 4.8% in the last 3 years, and an 9.2% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Gilt funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹1,401
  • 3Y Return
  • 7.1%

Frequently Asked Questions

Who should invest in Gilt mutual funds?

The gilt funds are ideal for investors looking for stable returns. Also, the investors who are risk averse and are looking for long-term returns on their investment must invest in Gilt funds. Investors who want to safeguard themselves from capital market risks and are looking for safe investments should invest in Gilt Funds.

What are the charges associated with Gilt mutual Funds?

Gilt funds come with a fixed annual fee called the expense ratio. The expense ratio takes care of the fund manager’s fee and any other fee required to manage the fund. The expense ratio is calculated as per the assets under management. As per the SEBI guidelines, the expense ratio of a Gilt Fund cannot go beyond 2.25%.

What are the risks associated with Gilt mutual Funds?

Gilt Funds are debt-based funds. Hence, the funds do not have high risks associated with them. The low risk of these funds is because they earn returns from investing in the Government of India securities. Therefore, the government tries to provide the promised interest to all the investors. If you have a low-risk appetite, you can invest in Gilt funds.

What are the top-performing Gilt Funds in 2022?

Several Gilt Funds in India have recorded a good performance. Some of the best performing Gilt funds in 2022 are Franklin India Government Securities Fund, SBI Magnum Gilt Fund, HDFC Gilt Fund, ICICI Prudential Gilt Fund, and Reliance Gilt Security Fund.

Are my gains from the Gilt Fund taxable? 

All the gains earned on Gilt funds are taxable. However, the tax rate depends on the holding period of the fund. If the investor makes short-term capital gains on the fund, they will have to pay a tax based on their income slab. However, if the investor decides to hold the gilt fund for more than three years, a long-term capital gains tax rate at a flat 20% is applicable.

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