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Gilt Mutual Funds – Should You Invest?

Gilt Mutual Funds – Debt mutual funds are considered as safe investment option. Gilt Funds are type of debt fund that makes investment in government securities.

Recently one of my friend asked question about Gilt Mutual Funds. He asked me that he is looking for safe investment option. Should he opt for Gilt Funds? So, here is answer. Gilt funds are safe in nature and suitable for low risk conservative investors. These funds have zero default risk. However, these funds have higher interest rate risk. Interest rate movements affects these funds. Here is complete information about Gilt Mutual Funds including factors that you should consider while investing in Gilt Funds.

Gilt Mutual Funds

How Gilt Fund Works?

Gilt Fund are money market funds. Gilt Fund invests in the government securities with fixed maturity. These government securities are issued by government time to time. As and when state or central government are in requirement of funds, the demand is made to RBI (The Reserve bank of India). RBI takes funds from the banks and insurance companies and lend to the central and state government. RBI issues government securities against this funds. Gilt funds purchase these funds. On the maturity interest payout is received.

As per SEBI norms, gilt funds have mandate to invest at least 80% of their asset in the government securities. There are two types of gilt funds available in the market. First type of fund make investment in the government securities with multiple maturity period. Whereas second type of fund make investment in the government securities with fixed maturity period.

Factors to consider while investing Gilt Funds


Gilt Mutual Funds are no risk fund. These funds make investment in government funds where risk of default on payment is NIL. These fund only carry risk of change in the interest rates. In case of rise in the interest rate the NAV of Gilt fund falls.


The return of gilt fund depends on the interest rate change. This fund can offer return up to 8-10%. However, returns in this case is not fixed.  This year gilt fund has offered 4.65% return. In the last five years returns are in range of 9-10%.

Expense Ratio

You should also consider Expense ratio while making investment in the Gilt Fund. The expense ratio is fee charged by fund management services. You should look at the fund with lower expense ratio.

Who should invest in Gilt Mutual Funds?

Gilt fund is alternative of fixed deposit scheme. However, fixed deposit offers fixed returns whereas gilt fund gives variable returns. These funds are not liquid in nature. If you are looking for frequent redemption you should not invest in this fund.

The risk adverse investors with conservative approach can think of investing in Gilt mutual funds. If you have lower risk tolerance and you want to stick to government securities these funds are for you.

These funds are for long term duration. You should not invest in this fund for short term duration. In the short term duration, you are likely to face losses.

If you are conservative investor than also you should avoid gilt mutual funds. You should look for other investment options such fixed deposit or post.

Shitanshu Kapadia
Shitanshu Kapadia
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment , tax, financial advice or legal opinion. Please consult a qualified financial planner and do your own due diligence before making any investment decision.