What Is A Gilt Mutual Fund And How It Can Be Better Investment Avenue Than Fixed Deposit

Gilt Mutual Funds: Risk-averse investors mainly prefer to have fixed deposits in banks. Bank FDs are considered to be the preferred option for such investors, but the returns on bank FDs are very low and sometimes even less than the rate of inflation. In such a situation, gilt mutual funds can prove to be a great option for risk-averse investors.

Which mutual funds are called Gilt Funds?

Gilt Fund is actually a popular debt mutual fund, which is also known as Gilt Mutual Fund. These funds are known to give higher returns than normal FDs, hence they are popular among investors. These funds invest in securities issued by the Central Government and State Governments. For this reason, these funds are called a safe investment option for investors. As per SEBI guidelines, gilt funds have to invest 80% in government securities.

Why Gilt Funds are considered safe?

Since government securities are backed by the government, the risk associated with them is very less. Governments issue securities through RBI to raise money. Since their ticket size is very large, due to this a retail investor is not able to invest directly. In such a situation, investors invest money in government securities through Gilt MF and take advantage of the fixed rate of return. The interest earned by the gilt fund by investing in securities is returned to the subscribers by way of returns.

How will such funds be better than FD?

One good thing about gilt funds is that their returns are not affected by interest rates. Now the phase of increase in repo rate has passed. The Reserve Bank has not increased the repo rate since the last three MPCs. In order to support growth in the coming times, the Central Bank will reduce the repo rate. As soon as the repo rate starts coming down, FD interest rates will also start coming down. Means now the best days of FD have passed. Second built MF rates are not affected by the repo rate. Naturally, in the days to come, gilt funds will prove to be a more attractive option than bank FDs.

What are the things to consider before investing in Gilt Funds?

Always check the maturity to yield before investing. It tells you how much return the fund would generate if you hold your investment till maturity. While investing, check the average maturity of the gilt fund and see if it matches with the timeline of your goals.

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