Gilt Funds are Mutual Funds which invest in various long term as well as medium term government securities. They also invest in high standard corporate debt.
Who opts for Gilt funds?
Usually a conservative investor, who wants to earn stable & reasonable income without any credit risk, opts for Gilt funds.
Advantages
- They are safest debt investments which protects the investor form credit risk , since whole amount is invested in government securities
- Even though they are more lucrative than FD, they provide superior long term returns, but without corresponding volatility.
Ideal investment scenarios
There is an inverse relationship between bond prices & interest rates. This means that whenever there is fall in interest rates, the bond prices increase & whenever there is increase in interest rates, bond prices decline.
An investor should probably invest in these mutual funds when inflation rate has reached its peak & interest rates on government securities are not expected to rise in near future. This situation will be best option as Gilt funds are available at low prices in expectation of lower or stable interest rates in coming years.
Benefit for retail investors
G-sec market (government securities) is mainly dominated by the institutional investors (who earn preferential treatment due to large volume of trading).However these funds allow the retail investor to avail the benefits of G-sec, in the form of Gilt funds.
