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Gilt Mutual Funds- Benefits, Feature, Taxation & Top Gilt Funds to Invest

Written by - Akshatha Sajumon

May 12, 2023 7 minutes

Investment in mutual funds or stock markets is often considered to be risky by an average investor. This notion often leads them to stay away from these investment options and go for traditional investing instruments like FDs, PPFs, NSCs, Government bonds, etc. However, although these instruments may be less risky, the returns generated by them are quite low.

To bridge this gap, there are many investment options for investors today that are less risky but also provide higher returns.

Gilt funds are among such funds and given below are the details related to these funds.

What are gilt funds and how do they work?

Gilt funds are considered to be a type of debt mutual fund but unlike other mutual funds, they invest in Government securities. The underlying government securities are issued by the Reserve Bank of India on behalf of the Government of India and the rate of interest is also set by RBI. This makes them quite safe with virtually zero risks of default.

The Reserve Bank of India is the source of funds for the State Government and the Central Government whenever they require such funds for various projects. When the Government approaches RBI for funds, the latter gathers them from various banks and insurance organizations to lend them to the State/Central Government.

The RBI in turn issues Government Securities or G-Secs that are of a fixed tenure. These G-secs or Government securities are subscribed under the gilt funds. Gilt funds have multiple G-secs of different maturities. When security under the fund reaches maturity, it is returned by the fund to receive a payout.

What are the benefits of gilt funds?

Gilt funds provide many benefits to investors. Some of such benefits are highlighted below.

  1. Wealth protection

Gilt funds invest in government securities. These securities have the benefit of government support and hence do not face the risk of default in interest payments or capital redemption. The investment of the investor is always secured and can be returned to them at the time of redemption from the fund.

  1. Risk free investment

Gilt funds are risk free investments where there is no default on the payments due to the investors. These funds are, however, exposed to interest fluctuation risks. The change in interest rate is inversely proportional to the NAV of the gilt fund. 

  1. Moderate returns 

The returns on gilt funds are higher than traditional investment options. The returns on gilt funds are influenced by the changing interest rates hence there are no guaranteed returns but in case of reducing interest, the returns provided by the gilt funds can be higher than even equity funds.

Types of gilt funds

Gilt funds are broadly classified under two categories based on the type of securities they invest in. The type of gilt funds are long term gilt funds and short term gilt funds.

  • Long term gilt funds invest in securities ranging from 5 years to 30 years. These long term funds have securities that are more sensitive to interest rate fluctuations. Hence they are best suited to institutional investors.
  • The other type of gilt funds invests in government securities that have short term maturities. These funds may be suitable for retail investors. 

Features of gilt mutual funds

Gilt mutual funds in India possess several distinctive features:

  • Government Securities: Gilt funds primarily invest in government securities issued by the central and state governments, providing investors with a safe investment option backed by sovereign credit.
  • Low Credit Risk: As government securities are considered to have minimal credit risk, gilt funds offer a relatively secure investment avenue.
  • Interest Rate Sensitivity: Gilt funds are sensitive to changes in interest rates, with longer maturity funds experiencing greater fluctuations in response to interest rate movements.
  • Diversification: Gilt funds allow investors to diversify their portfolios by gaining exposure to a range of government securities with different maturities.

Who are the target investors for gilt funds?

Gilt funds are risk free instruments and have an edge over the traditional investment options mentioned above. These funds invest in multiple Government securities and are backed by the government. The added advantage of moderate returns coupled with a risk free profile and lower costs make it an ideal investment destination for risk averse investors who want to invest in government securities.

What are the factors to be considered while investing in gilt funds?

Investors have to consider many factors while making an investment decision in gilt funds. Some of the important factors are discussed below.

  1. Risk factor

As mentioned above, investment in gilt funds is suitable to risk averse investors. But they are prone to interest rate fluctuation. Hence, the investors have to vary of such risk.

  1. Cost of investment

The cost of investment for gilt funds is known as the expense ratio. The expense ratio for the fund includes the fund manager’s fees as well as other costs involved in managing the fund like the administration fees. This expense ratio is expressed as a percentage of the fund’s average assets under management. The upper limit for the expense ratio in the case of debt mutual funds is fixed up to 2.25% as per SEBI guidelines.

  1. Investment objective

Another important factor to be considered is the investment objective of the investor. These funds are ideal for investors looking to build their funds over a relatively medium period of time. These funds help the investors ride the interest rate fluctuations and provide risk free investment options while safeguarding the capital investment.

  1. Period of investment

The period of investment for gilt funds is anywhere between 3 years to 5 years. This average investment period is higher than any short term investment horizon and lower than the traditional long term investments like 10 years or more.

How are gilt funds taxed?

Gilt funds are in the nature of debt mutual funds. Hence, their taxation is similar to the other debt mutual fund options. 

Gilt funds are subject to capital gains based on the period of holding. The taxation for gilt funds is tabled below.

Type of fundsShort term gainsTax rateLong term gainsTax rate
Gilt fundsLess than 36 monthsSlab rate of investor36 months and more20% (plus cess and surcharge)

Top gilt funds to invest in 2023

The details of the top gilt funds in India are mentioned below.

  • UTI Gilt Fund

This fund was launched in 2002 and has been providing good returns to investors since its launch. Some of the details of the fund are mentioned below.

Fund managerMr. Amandeep Singh Chopra
Launch date21st January 2002
Minimum investmentRs. 500
Expense ratio0.94%
RiskModerate risk

The returns provided by the fund as of 6th June 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch
  • Kotak Gilt Investment Fund

This fund was launched in 1998 and has been providing good returns to investors since its launch. Some of the details of the fund are mentioned below.

Fund managerMr. Abhishek Bisen
Launch date29th December 1998
Minimum investmentRs. 5,000
Expense ratio1.48%
RiskModerate risk

The returns provided by the fund as of 6th June 2021 are tabled below

Period6 months1 yr3 yrs5 yrsSince launch


Gilt funds are considered to be a safe haven for low-risk appetite investors. While these funds are risk-free, they are still subject to risk due to interest rate fluctuations. Hence, investors have to be cautious of their investments in gilt funds. Gilt funds being a type of mutual funds, the returns may not be guaranteed but investors still have the chances of higher returns.


1. What is the basic difference between gilt funds and debt mutual funds?
A. The basic difference between gilt funds and debt mutual funds is that gilt funds specifically invest in government securities and debt mutual funds invest in corporate bonds, government bonds, money market securities, or other similar securities. Hence, gilt funds are safer than regular debt mutual funds.

2. How can investors invest in gilt funds?
A. Investment in gilt funds can be done similar to any other mutual funds. Investors can easily download Fisdom App to invest in gilt funds or any kind of mutual fund easily.

3. What is the maximum expense ratio for debt funds?
A. The maximum expense ratio set by SEBI for debt mutual funds is 2.25% per annum.  

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