TIMELINE
0:00 : Intro
1:20 : What are Gilt funds?
2:04 : Key things to know about Gilt Funds
3:33 : Who should invest in Gilt Funds?

This is the 14th & 15th category of debt mutual funds. We have already discussed the previous 13 categories, watch them here.
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What are Gilt Funds?

Gilt funds are those debt funds that primarily invest in government securities. According to SEBI, minimum 80% investment has to go into govt securities across duration.

Gilt Funds with 10-year constant duration on the other hand have a condition, It can only invest in government securities having a maturity of 10 years. The fund is managed in a way that the Macauley duration continues to stay at 10 years.

Key things to know about gilt funds

No credit risk – Since Gilt funds invest in govt securities there is no chance of default risk ka chance. Government is the most reliable source when it comes to investments. Essentially gilt funds enjoy the sovereign guarantee.
Long duration – Since govt. borrows money for a longer duration, the time horizon in these investments is longer.
Lock-in – Some gilt funds have a lock-in period; meaning you cannot withdraw your amount just anytime you want. Liquidity challenges can arise when it comes to gilt funds.
Interest rate risk – Gilt funds are not prone to credit risk but it is sensitive to interest rate. These funds give attractive returns in a falling interest rate regime. Rising interest rate regime doesn’t work well for them.

Who should invest in gilt funds

Gilt funds are best suited for moderate risk takers. There is no credit risk here but changes in interest rates make it volatile. Such funds are meant for those who can understand interest rate cycles and can tolerate negative returns if interest rate cycle has caused it. You have to have a long-term outlook to invest in gilt funds. Debt fund experts suggest SIP in gilt funds to reduce your interest rate risk.

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Disclaimer: These videos are for educational purposes only. Mutual fund investments are subject to market risk.

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