In the realm of mutual funds, there are different kinds of funds that you might want to come across. These funds are effective, helpful, and worth investing in if you use them the right way.  With different alternative investment options, investors incline to get confused between their features and are not in a position to make the right choice. For an investor, it is vital to understand what an instrument caters to and the peculiarities attached to it. Diversification is the main key to constructing a strong portfolio and investing in diverse asset classes is an ideal step to attain proper diversification in your portfolio.

Talking about gilt funds, these are a kind of mutual fund that only invest in the bonds and securities matters by the government (g-secs). They differ in terms of maturity and are believed to be a risk-free option because the money invested is in the safe hands of the government. Medium-term and long-term government securities are selected for investment and since the interest on the same is decided by the Reserve Bank of India (RBI), it is believed to be a low-risk investment option.

What are the returns attained from the gilt fund?

Gilt mutual funds type has a return that is based on the repo rate fixed by RBI. In case RBI does not change the rate of interest, it is going to be a good time to invest in gilt funds. The funds cater to reasonable and consistent returns that make it a preferred investment choice for many. There are many individuals who do invest in gilt funds only.

Why these funds are called low-risk investments?

These are considered to be safe investments with low risk because they invest in bonds and securities from the government. It does not anywhere mean that it is a completely risk-free alternative. It does carry the danger of interest rate fluctuation. In case the government makes any changes in the rate of interest, it is going to impact your return on investment. As compared to equity or even other debt instruments, it is definitely a less dangerous option.

What type of taxes is applicable on gilt funds?

There is no securities transaction tax (STT) appropriate on gilt funds. They are taxed under the Income Tax Act, 1961 as any other type of capital gain through investment in debt instruments. In case the investment period is below a year, the gains are added to your salary and taxed as per your income slab. IN case of more than three years, it is taxed twenty percent with indexation benefit. In any case, it is a better choice when compared to other types of funds having different other taxes levied on them.

In case you invest in debt funds, you should pick gilt funds. It caters to a higher return if you compare it to bank savings accounts and that too with negligible risk. It is perfect to time your entry and exit from the fund so as to benefit from the interest rates. Equity and debt, in most cases, have an opposite movement. For instance, in case the equity is not performing well, you are going to notice that debt funds are doing well.


So, it is time that you enter the market and invest in funds. You can surely prefer gilt funds!