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Overview
Government Bond Funds, commonly referred to as Gilt Funds in India's mutual fund framework, invest predominantly in government securities.
Because the underlying securities are government-issued, these funds largely avoid the corporate default risk associated with lower-quality private-sector bonds.
However, Gilt Funds can still experience substantial NAV movements because of interest-rate risk.
Explained
A Gilt Fund is an open-ended debt scheme that invests predominantly in government securities across maturities.
Government securities can include bonds issued by the Central Government and other eligible sovereign securities according to the scheme mandate.
The defining characteristic is the fund's high exposure to government securities rather than corporate debt.
Explained
The fund invests in government securities with different maturities.
Returns can come from:
Government securities have very low conventional sovereign credit-default risk in domestic currency, but their market prices can fluctuate sharply.
If newly issued similar bonds begin offering 8%, the older bond becomes less attractive and its market value may fall.
Longer-duration government securities can experience significant price changes from relatively small movements in yields.
Suitability
Gilt Funds may suit investors who:
They may not suit investors who expect a government-backed portfolio to behave like a fixed deposit.
Advantages
The portfolio predominantly invests in government securities rather than corporate debt. This materially reduces exposure to conventional corporate default risk.
The fund manager selects government securities across maturities and manages portfolio duration.
Longer-duration government securities can rise in price when market interest rates decline.
Investors can obtain diversified government-security exposure without purchasing and managing individual securities themselves.
Government securities generally have clearly defined issuers, coupons, and maturities.
Before you invest
This is the major risk. A Gilt Fund holding long-duration securities can experience substantial NAV declines when yields rise.
Check Macaulay and modified duration before investing. Two Gilt Funds can have very different interest-rate sensitivity because the category permits investment across maturities.
Returns from Gilt Funds can differ significantly depending on the direction of bond yields.
Government securities have strong credit characteristics, but their market prices still fluctuate.
YTM can help describe the portfolio's current yield characteristics but is not a guaranteed return.
A Gilt Fund with significant long-duration exposure may be inappropriate for money required in the near term.
Taxation
Gilt Funds predominantly invest in debt securities and generally fall within the relevant debt-oriented tax framework.
Where Section 50AA applies, gains from relevant units acquired on or after April 1, 2023 can be deemed short-term capital gains irrespective of holding period and taxed at the investor's applicable rate.
Tax provisions can change, so investors should check prevailing rules before redemption.
Step by step
Good to know
In this context, it generally refers to a Gilt Fund that predominantly invests in government securities.
No. They have low corporate credit risk but can carry significant interest-rate and market risk.
Yes. Rising bond yields can reduce government-security prices and cause the fund's NAV to fall.
Interest-rate risk is generally one of the most important risks, particularly when portfolio duration is high.
Gilt Funds predominantly invest in government securities. Corporate Bond Funds predominantly invest in qualifying corporate bonds.
Falling yields can benefit bond prices, particularly longer-duration securities, but future interest-rate movements cannot be predicted with certainty.
Recap
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FUND
Bandhan Gilt Fund Direct Plan - GrowthDebt Government Bond₹40.76
0.05%
7.85%
8.06%
6.38%
DSP Gilt Fund Direct Plan Payout of Income Dis cum Cptl Wdrl OptDebt Government Bond₹12.87
0.34%3.38%
7.23%
6.21%
I
ICICI Prudential Gilt Fund Direct Plan GrowthDebt Government Bond₹116.04
0.55%5%
7.21%
6.58%
Invesco India Gilt Fund Direct Plan Monthly Reinvestment of Income Dist cum Capital WtdrlDebt Government Bond₹2510.24
0.34%4.9%
7.11%
5.97%
Axis Gilt Fund Direct Plan Regular Pyt of Inc Dis cum Cap WdrlDebt Government Bond₹9.92
0.19%4.33%
7.05%
5.94%
SBI Gilt Fund Direct Reinvestment Inc Dist cum Cap WdrlDebt Government Bond₹23.2
0.04%4.11%
6.58%
6.2%
UTI Gilt Fund Direct Plan GrowthDebt Government Bond₹67.99
0.21%4.96%
6.55%
5.65%
Franklin India Gilt Fund Direct GrowthDebt Government Bond₹67.74
0.24%5.92%
6.48%
5.38%
Baroda BNP Paribas Gilt Fund Direct Growth OptionDebt Government Bond₹48.17
0.22%3.13%
6.42%
5.58%
T
Tata Gilt Fund Direct Plan Rnvstmnt of Inc Dist cum Cap WdrlDebt Government Bond₹25.4
0.37%3.41%
6.38%
5.83%
Bandhan Gilt Fund Direct Plan Prdic Pyt of Inc Dis cum cptl WdrloptDebt Government Bond₹19.29
0.05%7.66%
7.91%
6.35%
DSP Gilt Fund Direct Plan GrowthDebt Government Bond₹105.35
0.34%3.38%
6.6%
5.89%
I
ICICI Prudential Gilt Fund Direct Pln Reinvestment of Inc Dist cum Cap WdrlDebt Government Bond₹18.52
0.55%3.92%
6.5%
6.07%
Invesco India Gilt Fund Direct Plan GrowthDebt Government Bond₹3216.87
0.34%3.04%
6.48%
5.6%
Axis Gilt Fund Direct Plan Regular Reinvst of Inc Dis cum Cap WdrlDebt Government Bond₹9.92
0.19%4.33%
7.05%
5.94%
SBI Gilt Fund Direct GrowthDebt Government Bond₹72.68
0.04%4.11%
6.58%
6.2%
UTI Gilt Fund Direct Plan Payout Inc Dist cum Cap WdrlDebt Government Bond₹31.47
0.21%4.12%
6.24%
5.46%
Nippon India Gilt Fund Direct Plan Automatic Cap App Payout Inc Dist cum Cap WdrlDebt Government Bond₹44.06
0.23%3.75%
6.24%
5.54%
Baroda BNP Paribas Gilt Fund Direct Reinvst of Inc Dis cum Cap WdrlDebt Government Bond₹35.37
0.22%3.14%
6.25%
5.48%
T
Tata Gilt Fund Direct Plan GrowthDebt Government Bond₹90.19
0.37%3.4%
6.38%
5.83%
Showing 1–20 of 80
