Skip to main content

What Are Gilt Funds?

These are mutual fund schemes that invest in government securities (G-Secs), issued by the Reserve Bank of India on behalf of the government. Being sovereign papers, these do not expose investors to credit risk. Conventional debt funds invest in debt instruments across the board, but gilt funds invest only in government bonds. The G-Sec market is largely dominated by institutional investors and gilt funds are an avenue for retail investors to participate in the market.

Who should invest?

These are ideal for those who want more safety for their investments or are risk-averse and, at the same time, are looking for reasonable returns on their money. In the present scenario, fund managers advise investing for medium (3-5 years) to long-term (above 5 years). However, invest in tranches to avoid over-exposure and associated risks. According to mutual fund rating agency, Value Research, medium and long-term gilt funds gave returns of 3.84 per cent for the year ended May 30. In the short-term (less than a year), they have returned 4.18 per cent.

When should you invest?

These are a good option when inflation is near its peak and the RBI is not likely to raise interest rates immediately. There is an inverse relationship between bond prices and interest rates — a fall in interest rates leads to a rise in bond prices and vice versa. Since rates are expected to peak soon, we may see a dip in interest rates in six months. That will be the ideal time to invest in these funds.

Are gilt funds completely risk-free?

No, these don't even assure returns like those offered by bank fixed deposits and savings accounts. Factors such as fiscal deficit and the country's debt burden weigh on the performance of G-Secs and hence, gilt funds. Investment in gilt funds is subject to interest rate risks. When interest rates rise, prices of government securities fall, adversely impacting the performance of gilt funds. Typically, higher the fund's average maturity, higher the volatility. Another disadvantage is that they are highly illiquid. These funds invest in GSecs, which are not actively traded.

What are the applicable charges?

Gilt funds charge an exit load of one per cent if you redeem the units in less than a year.

How are investments taxed?

If you sell the unit in less than a year, the returns are added to your income and taxed according to the slab you fall under (short-term capital gains tax). Long-term capital gains tax is 10 per cent without indexation and 20 per cent with indexation. These are debt funds and not subject to the securities transaction tax.
 

Popular posts from this blog

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...
Read more

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...
Read more

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...
Read more

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...
Read more

10 year NSC launched, all set to give 8.7 per cent

Invest in Mutual Funds Online Download Mutual Fund Application Forms THE government introduced a 10-year National Savings Certificate ( NSC ), which will earn an interest rate of 8.7 per cent per annum. The notification for the launch of the new savings instrument, 10-year National Savings Certificate (IX-Issue), 2011, has been issued, an official statement said. The scheme will come into effect from December 1, it added. Investments in NSC will earn interest at the rate of 8.7 per cent compounded semi-annually, it said, adding that on an investment of Rs 100, the depositor will get Rs 234.35 on maturity of the NSC. There is no upper limit for investment in the certificate, it added. The new scheme will give better returns along with tax benefit to savers. At present, the maturity period of NSC is six years and it qualifies for tax relief for investment up to Rs 1,00,000 under Section 80C. The decision to raise the maturity period of NSC has been taken on the b...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now