Want To Invest In Crypto?
Explore Tikka Token.

Enter Details For Your Wealth Coach

Thanks For Subscribing!

We'll send you interesting emails
about exciting investment options.
Oops! Something went wrong while submitting the form.
Investing Related

What Are Gilt Mutual Funds?

Never heard of GILT Mutual Funds? This blog covers all you need to know about Gilt mutual funds. We will answer important questions like how does a Gilt fund work, who should invest in Gilt funds and more.
March 17, 2021

Schedule a call based on your convenience. And get an expert to help you invest.

Top 5 Reasons To Try Our Powerful Investment App!

  • High Quality MFs
  • Top Notch Stock Advisory
  • Expert Financial Advisors
  • Alternative Investments
  • Low Minimum Investments

Debt funds are a thriving category of mutual funds in India. SEBI has an interesting approach to categorizing funds based on their inherent investment characteristics. One such fund is the Gilt fund. 

Gilt funds are considered to be one of the safest mutual funds available to Indian investors. Gilt simply means a fixed interest rate security issued by any government. 

It has little to no default risk since it's government-issued security (also known as G-sec or Government Security). In India, Gilt can include fixed interest securities issued by the Central and State governments. 

Now that you know what Gilt means, it will be easier to understand Gilt funds in India.
Important: This blog is meant to educate readers and the information furnished here is not to be construed as investment advice from Cube Wealth. 

What Are Gilt Funds In India?

In a nutshell, Gilt funds invest in fixed interest government securities known as Gilts. A Gilt fund is thus a type of debt fund with a very low default risk but a comparatively high-interest rate risk. 

How Do Gilt Mutual Funds Work?

It’s often a misconception that only individuals or companies require loans. The truth is, even the central and state government may want a loan for infrastructure projects and other such betterment projects. 

In such a case, the government can’t turn to any other bank apart from the RBI, the institution that regulates all other banks and financial entities in the country.

The RBI will borrow money from other financial institutions like banks, insurance companies or pension funds to lend money to the government. 

In return, the RBI will issue bonds or Gilts with a fixed interest rate and tenure. A Gilt fund invests in such government-issued Gilts. SEBI guidelines require 80% of a Gilt fund’s portfolio to be gilts or g-secs.

There are short term and long term Gilts based on the maturity profile. But it’s important to note that a long maturity timeline will carry a higher interest rate risk. 

What Is Interest Rate Risk In Gilt Funds?

If you’re new to investing in mutual funds, you must wonder why gilt funds are:

  1. Safe
  2. Default risk-free
  3. Prone to interest rate risk

It’s simple. Gilt funds are safe because they invest in government securities and the government rarely ever fails to repay debt reneges on payments so there’s little to no risk of default.

But Gilt funds carry interest rate risk because they’re directly impacted by interest rates. It’s important to note that Gilt funds are fixed interest securities. 

If the interest rates are high, Gilts lose value because investors wouldn’t prefer the low, fixed interest nature of the investment. Instead, they would turn to other debt instruments or equity.

However, if the interest rates fall, the Gilts automatically gain value because they offer a blanket of safety with the fixed interest rate and low risk.  

Should You Invest In Gilt Mutual Funds?

Right off the bat, it’s simple to acknowledge that Gilt funds are known to be comparatively safer than other mutual funds like equity funds primarily because they invest in safe government securities.

This implies that Gilt funds may be suitable for investors with a low-risk appetite like beginners or conservative investors. However, there are other mutual fund options better than Gilt funds which are:

  • Just as safe
  • Lucrative
  • Suitable for various tenures

Read this blog to know more about the top 20 best mutual funds in India for 2021

Moreover, evaluating your intent and investing in a mutual fund accordingly matters. This would include knowing your risk profile and investment goals for the short and long term.

The Cube Wealth app has an interesting risk analysis quiz that can help you determine which mutual funds you should invest in. Download the Cube Wealth app to know more. 

5 Factors To Consider before investing in Gilt Mutual Funds in India

1. Risk

As mentioned above, Gilt funds are relatively safe mutual funds that carry near-zero default risk because the government almost always pays its dues (much like a Lannister).

However, Gilt funds do carry interest risks and rising interest rates may lead to a drop in the NAV of Gilt funds. Thus, it is advisable to consult a wealth coach before investing in any mutual fund scheme. 

But there is another type of debt fund that’s equally as safe. Read this blog to know more about overnight funds. 

2. Returns

Gilt funds may generate 8-12% returns at the most because they are after all debt funds. Returns, just like any other mutual fund, are not guaranteed because of the impact of rising and falling interest rates.

Overnight funds and liquid funds may give better returns than Gilt funds. Read this blog to know more about Overnight funds Vs liquid funds. 

3. Timeframe

A Gilt fund’s portfolio consists of Gilts or government securities that mature in 3-5 years. Thus, Gilt funds may be potentially suitable for the medium to long term. 

Read this blog to know about the best long term investments for 2021.

4. Investment Cost

Gilt funds carry an expense ratio that investors have to pay for the fund manager’s active involvement in the fund’s day to day operations. A number of Gilt funds do not charge an exit load. 

Did you know that liquid funds don’t charge an exit load after 7 days? Read this blog to know all about the top liquid funds. 

5. Tax

Gilt funds are taxed just like Debt funds:

  • Short Term Capital Gains

If you hold any Gilt fund for less than 3 years, you are liable to pay a Short Term Capital Gains (STCG) tax. The gains are added to your income and taxed according to your I-T slab. 

  • Long Term Capital Gains

If you hold any Gilt fund for more than 3 years, you’ll have to pay a Long Term Capital Gains (LTCG) tax. LTCG tax rate is 20% with indexation benefits. 

Read this blog to know more about tax saving mistakes you should avoid in 2021.


Gilt funds are debt funds that invest in government-issued fixed interest securities known as Gilts. In terms of risk, Gilt funds are known to be one of the safest mutual funds. 

However, Gilt funds do carry interest rate risks which can impact the NAV. The interest rate risk can be further compounded by the maturity period of the Gilts. Longer maturity implies higher risk. 

There are comparatively better mutual fund options with lower interest rate risk like Overnight funds, Liquid funds, Ultra Short Term funds, etc. that you can invest in using a reliable app like Cube Wealth. 

Download the Cube Wealth app for investment options better than Gilt mutual funds. 

Watch this video to learn why you should invest with a proven advisor

Here’s a list of useful mutual fund blogs for you:

1. How Can DIY Investors Get Curated Mutual Funds?

2. Simplifying Mutual Fund Investment Jargon

3. What Are Overnight Funds & Who Should Invest?

4. What Is An Arbitrage Fund & Who Should Invest?

5. What are Contra Mutual Funds & Who Should Invest?

Read About All Popular Mutual Funds Types

1. Debt Mutual Funds

2. Equity Mutual Funds

3. Liquid Mutual Funds

4. What Are Global & International Mutual Funds?

5. The Types Of Mutual Funds You Can Invest In India

Priya Bansal
Curious about personal finance and all things money. Can either find me reading a book or dancing to a tune.

Top 5 Reasons To Try Our Powerful Investment App!

Schedule a call based on your convenience. And get an expert to help you invest.

  • High Quality Mutual Funds
  • Top Notch Stock Advisory
  • Invest in U.S. Stocks
  • Alternative Investments
  • Low Minimum Investments
Try Cube’s Exclusive Wealth Concierge Service! We offer a 10-minute portfolio analysis and set up service to select users.

Want the best
investment blog delivered straight to your inbox?

Thank you for joining our mailing list!
Oops! Something went wrong while submitting the form.

Similar Posts


Calculate your
SIP returns

Calculate your
Lumpsum returns

Grow your money without wasting time

on stock picking, poring over excel sheets, financial news, analyzing market trends, tracking the Sensex, researching company fundamentals, comparing mutual funds, reading financial reports, trying to predict the future & losing your sanity!