--- title: What is a Gilt Fund? canonical_url: https://sanchaykaro.com/what-is-a-gilt-fund/ last_updated: 2026-05-09T10:23:37+00:00 plugin_version: 1.2.1 --- # What is a Gilt Fund? What is a Gilt Fund? – Complete Simple Guide for Beginners Are you looking for a **debt mutual fund** that carries almost **zero credit risk**? A **Gilt Fund** could be the right choice for you. This blog explains **what is a Gilt Fund** in very simple language. You will also learn how to invest easily using the **[Sanchaay Karo app](https://apirrabbit.com/api/v1/master/LandingPage?arn=ARN-301757)**. --- ### What is a Gilt Fund? (Very Simple Definition) A **Gilt Fund** is a type of **debt mutual fund** that invests at least **80% of its total assets** in **government securities** (also called **G-Secs**). These are **bonds** issued by the **Central Government** and **State Governments** of India. Think of it like this: When you invest in a **Gilt Fund**, you are **lending money directly to the government** of India. Just like a **fixed deposit** lends money to a single bank, a **Gilt Fund** lends money to the government. Because the **Government of India** is the borrower, the chance of **default** (not repaying) is almost **zero**. The name "**Gilt**" comes from old British times. The British government would issue bond certificates with a border of **thin gold paint**. Hence, they came to be known as **'Gilt-edged' certificates**. In India, the first **Gilt Fund** was launched by **Kotak Mahindra AMC** in December 1998. Today, **Gilt Funds** collectively manage over **₹1.45 lakh crore**, showing strong trust among both **retail and institutional investors**. --- ### How Does a Gilt Fund Work? (Step-by-Step) **Gilt Funds** pool money from many **investors**. A professional **fund manager** then invests that money in **government securities**. Here is how the whole system works: **Step 1: Government Needs Money** The government always needs money for roads, railways, defence, schools, hospitals, and other development work. **Step 2: RBI Acts as Banker** The **Reserve Bank of India (RBI)** acts as the banker to the government. The **RBI** collects money from **banks**, **insurance companies**, **pension funds**, and **mutual funds** on behalf of the government. **Step 3: RBI Issues Government Securities** In return, the **RBI** issues **government securities** (also called **G-Secs**). These are like **IOUs** (I Owe You) from the government. They come with a fixed **interest rate** (called **coupon**) and a fixed **maturity date**. **Step 4: Gilt Funds Buy These Securities** **Gilt Funds** buy these **G-Secs** on behalf of their **investors**. When the securities **mature**, the **fund** receives the **principal** amount along with the **interest**. This income is passed on to you, the **investor**, as **returns**. **How Do Investors Make Money?** **Gilt Funds** make money in two ways: 1. **Regular Interest Income**: The **government** pays **interest** (called **coupon**) regularly. This provides a steady **income stream**. 2. **Capital Appreciation**: When **interest rates** fall, the prices of existing **bonds** rise. This creates **capital gains** for the **fund**. [[What is a Tax Saving Fund?](https://sanchaykaro.com/what-is-a-tax-saving-fund/↗)](https://sanchaykaro.com/what-is-a-tax-saving-fund/↗)--- ### Key Features of Gilt Funds FeatureWhat It Means**SEBI Mandate of 80%**At least 80% of assets must be in **government securities** (G-Secs) issued by central and state governments**Zero Credit Risk**Because the **Government of India** is the borrower, the chance of **default** is almost **zero**. Your **capital** is very safe**No Lock-in Period**You can buy or sell units on any business day. You are not forced to stay invested**Open-ended**You can invest anytime and withdraw anytime. There is no fixed **maturity date** for the **fund** itself**Professional Management**Expert **fund managers** decide which **G-Secs** to buy and when to sell based on **interest rate** outlook**High Liquidity**You can **redeem** your units on any business day. Money is usually credited within 1-2 days**Interest Rate Sensitivity****Gilt Funds** are highly sensitive to **interest rate** changes. When **RBI** changes **rates**, the **fund's NAV** moves significantly**High Transparency****Holdings** are fully disclosed. You can see exactly which **G-Secs** the **fund** holds--- ### Types of Gilt Funds in India There are **two main types** of **Gilt Funds** in India: #### 1. Gilt Funds (Across Maturities) These **funds** invest in **government securities** of **different maturity periods**. They can have **short-term**, **medium-term**, and **long-term bonds** in the same **portfolio**. The **fund manager** can move between different **maturities** based on the **interest rate outlook**. #### 2. Gilt with 10-Year Constant Maturity These **funds** invest in **government securities** such that the **Macaulay duration** of the **portfolio** is always **equal to 10 years**. When bonds become shorter than 10 years, the **fund manager** buys new ones to keep the balance right. These **funds** are highly sensitive to **interest rate** movements because of their **long duration**. According to **SEBI's classification system**, **Gilt Funds** are listed as **debt-oriented schemes** along with other categories like **Corporate Bond Funds**, **Banking & PSU Funds**, **Credit Risk Funds**, and **Floater Funds**. --- ### Benefits of Investing in Gilt Funds Here are the main benefits of adding a **Gilt Fund** to your **mutual fund portfolio**: BenefitWhy It Matters**Zero Credit Risk**Your money is lent to the **Government of India**. The government has never defaulted on its **debt** repayments. Your **capital** is extremely safe**Sovereign Guarantee****G-Secs** carry a **sovereign guarantee**. This means the full faith and credit of the **Indian government** backs your investment**High Return Potential****Gilt Funds** have historically delivered better **returns** than other **debt fund** categories. Over the past 15 years, **Gilt Funds** recorded **8.1%** annualised returns, higher than **short-duration funds (7.3%)** and **corporate bond funds (7.7%)****Capital Appreciation When Rates Fall**When **interest rates** fall, **bond prices** rise. This creates **capital gains** for **investors**. This is the biggest advantage of **Gilt Funds****Portfolio Diversification****Gilt Funds** have a **low correlation** with **equity markets**. When **equity markets** fall, **Gilt Funds** can hold or even gain value**Suitable for Long-Term Goals**Perfect for **investment horizons** of **3 years or more**. **Axis Gilt Fund**, for example, is suitable for an **investment horizon** of **3 years or more****No Exit Load**Most **Gilt Funds** have **nil exit load**. You can **redeem** without paying any penalty**Professional Management**You do not need to track **interest rate** movements yourself. Expert **fund managers** do it for you--- ### Top Gilt Funds in India (2026) Here are some of the **best Gilt Funds** in India based on **AUM** and performance: Fund NameAUM (₹ Crore)1-Year Return (%)3-Year CAGR (%)5-Year CAGR (%)Expense Ratio (Direct)Modified Duration (Years)**ICICI Prudential Gilt Fund**8,8582.77% (2025 Q1)——1.10%8.39**Invesco India Gilt Fund**2520.11%6.55%5.31%0.46%9.33**Quant Gilt Fund**99.40—6.26%—0.34%—**Axis Gilt Fund**—1.22%6.51%5.28%——**Nippon India Gilt Fund**1,825.73———0.50%—**PGIM India Gilt Fund**95.06———0.67%—*Data sources: FundsIndia, Moneycontrol, Financial Express, PGIM India* **Important Notes:** - **Modified duration** shows how sensitive the **fund** is to **interest rate** changes. **ICICI Prudential Gilt Fund** has a **modified duration** of **8.39 years**, while **Invesco India Gilt Fund** has **9.33 years**. Higher **duration** means higher **volatility**. - **Yield to Maturity (YTM)** indicates current **income potential**. **ICICI Prudential Gilt Fund** has a **YTM** of **7.59%**, and **Invesco India Gilt Fund** has a **YTM** of **7.01%**. *Disclaimer: Past performance does not guarantee future returns. Please consult your **financial advisor** before investing.* --- ### Risks of Gilt Funds (Must Read Before Investing) **Gilt Funds** are safe from **credit risk** but carry other **significant risks**. Every **investor** must understand these **risks of Gilt Funds**: RiskExplanation**Interest Rate Risk**This is the **biggest risk** for **Gilt Funds**. When **interest rates** rise, **bond prices** fall. This reduces your **returns**. **Long-duration Gilt Funds** can fall sharply when **rates** rise**NAV Volatility****Gilt Funds** can experience significant **NAV** swings. Returns in the past have ranged from **3.75% to 11.6%** in some periods**Inflation Risk****Returns** may not always beat **inflation**, especially if **interest rates** are low**Lower Returns than Equity**Over the long term, **equity funds** have historically given much higher **returns****Fund Manager Risk**Your **returns** depend on the **fund manager's** skill in predicting **interest rate** movements. If they get it wrong, the **fund** can underperform**Liquidity Risk**During a financial crisis, even **government securities** may be hard to sell quickly**Duration Mismatch Risk**If you need your money before the **duration** period, you may have to sell at a loss**Real-world example:** **Gilt Funds** underperformed in 2022 when **interest rates** rose sharply. **Bandhan Gilt Fund** delivered **negative returns** in certain quarters during that period. This shows that even **government-backed funds** can lose money in the **short term**. --- ### Who Should Invest in Gilt Funds? (Ideal Investor Profile) **Gilt Funds** are perfect for: - **Conservative investors** who want **zero credit risk** but are willing to take some **interest rate risk** - **Investors with a long-term horizon** of **3 to 5 years or more** - **Investors who expect interest rates to fall** – when **RBI** cuts **rates**, **Gilt Funds** perform very well - **Investors looking to diversify their portfolio** – **Gilt Funds** have a **low correlation** with **equity markets** - **Risk-averse investors** who want **capital preservation** with the potential for **capital appreciation** - **Investors who do not want to take credit risk** but still want better **returns** than **FDs** **Who should AVOID Gilt Funds?** - **Short-term investors** with a horizon of less than 3 years - **Investors who cannot tolerate NAV fluctuations** – **Gilt Funds** can be volatile in the **short term** - **Beginners** who are new to **debt mutual funds** (start with **liquid funds** or **ultra-short duration funds** first) - **Investors who need guaranteed returns** – **FDs** may be more suitable - **Investors who expect interest rates to rise** – **Gilt Funds** underperform in rising **rate** environments As **Mint** notes: *"Investors with a higher risk appetite could consider a small tactical allocation to long-duration gilt funds—but only as a satellite exposure"*. This means **Gilt Funds** should not be your entire **portfolio**; they should be a **small part** of your **debt allocation**. --- ### Gilt Fund vs Other Debt Fund Categories Many **investors** get confused between **Gilt Funds** and other **debt fund** categories. Here is a simple comparison based on **SEBI** rules: Fund TypeWhat It Invests InCredit RiskInterest Rate RiskBest For**Gilt Fund****Government securities** (80%+)ZeroHigh3-5+ year horizon, falling **rate** environment**Banking & PSU Fund****Banks**, **PSUs**, **PFIs** (80%+)Very LowLow to Moderate1-3 year horizon**Corporate Bond Fund****Corporate bonds** (AA+ and above, 80%+)LowModerate2-5 year horizon**Credit Risk Fund**Lower-rated **corporate bonds** (AA and below, 65%+)HighModerate3-5 year horizon**Floater Fund****Floating rate instruments** (65%+)LowVery LowRising **rate** environment**Liquid Fund****Money market** securities (up to 91 days)Very LowVery LowParking money for a few days/months**Key differences to remember:** - **Gilt Funds** are the only **debt fund** category with **zero credit risk**. They are backed by the full faith and credit of the **Government of India**. - **Banking & PSU Funds** represent a middle ground between the **safety** of **government securities** and the **yields** of **corporate bond funds**. - **Gilt Funds** have the **highest interest rate risk** among **debt funds** because they typically have **long durations**. --- ### Gilt Fund vs Liquid Fund – Which One is Better? AspectGilt FundLiquid Fund**Primary Investment****Government securities** (G-Secs) with long maturities**Debt securities** with maturity up to 91 days**Credit Risk****Zero** (sovereign-backed)**Very Low** (invests in high-quality instruments)**Interest Rate Risk****High** (sensitive to **rate** changes)**Very Low** (short maturities provide protection)**Investment Horizon****Medium to long term** (3+ years)**Short term** (7 days to 1 month)**NAV Volatility****High** – can fluctuate significantly**Very low** – largely stable**Suitable For**Long-term goals, **diversification**, falling **rate** environment**Emergency funds**, short-term parkingAs **Kotak Mutual Fund** explains: *"Use Gilt Funds for long-term growth and exposure to government securities. Use Liquid Funds for emergency funds or short-term liquidity needs"*. --- ### When Should You Invest in Gilt Funds? (Timing Matters) **Timing is very important** for **Gilt Funds**. They perform best during specific **interest rate** cycles: Market ScenarioInterest Rate TrendExpected Impact on Gilt FundsInvestor Action**Falling Interest Rates**Downward**Bond prices rise** → **NAV increases** → **High returns****Best time to invest****Rising Interest Rates**Upward**Bond prices fall** → **NAV decreases** → **Low or negative returns****Avoid new investments****Stable Interest Rates**Steady**Returns moderate** (mostly from **interest income**)**Hold existing investments****High Inflation Period**Rising (RBI increases rates)**Short-term losses** possible**Stay cautious** or invest in **short-duration funds** insteadAs **5paisa** notes: *"Constant maturity gilt funds tend to perform best during periods of falling interest rates. When the RBI cuts the repo rate, the yield on existing long-term bonds becomes more attractive, pushing up the price of those bonds, leading to capital gains"*. --- ### Gilt Funds in 2026 – What's Happening Now? The **interest rate** environment in 2026 is creating interesting opportunities for **Gilt Funds**: - **RBI has signalled stability** after two years of **rate hikes**. When **interest rates** stop rising or start falling, **bond prices** rise – leading to **capital gains** for **Gilt Fund** investors. - **Experts predict a decline in interest rates** in the upcoming fiscal year. This trend could benefit **long-duration gilt funds**, as **bond prices** generally rise when **interest rates** fall. - **Gilt Funds** have seen **quarterly returns** of around **2.77% to 2.97%** in Q1 2025 and Q1 2026 for some top **funds**. However, as **Mint** advises: *"Investors with a higher risk appetite could consider a small tactical allocation to long-duration gilt funds—but only as a satellite exposure. For most investors, shorter-duration, accrual-oriented funds may make sense as the core of their debt allocation right now"*. --- ### Taxation on Gilt Funds (Simple Rules for FY 2026-27) **Gilt Funds** are treated as **debt mutual funds** for **taxation** purposes. The **tax rules** changed significantly from **April 1, 2023**. Purchase DateHolding PeriodTax Treatment**On or after April 1, 2023**Any period**Gains added to your income** and taxed as per your **income tax slab rate** (no **indexation** benefit)**Before April 1, 2023**Less than 3 years**STCG** added to your **income** and taxed as per your **slab rate****Before April 1, 2023**3 years or more**LTCG** taxed at **20% after indexation** benefit**Key tax rules for FY 2026-27:** - **Finance Minister Nirmala Sitharaman's Budget 2026** speech brought **no changes** to **debt mutual fund** taxation, maintaining **taxation at slab rates**. - **Debt mutual funds** purchased **after April 1, 2023** are taxed at **slab rates** regardless of the **holding period**. - **Dividends** (IDCW) are added to your **income** and taxed as per your **slab rate**. - The **fund house** deducts **10% TDS** under Section 194K if your **dividend** exceeds **₹5,000** in a financial year. **Important:** The **Association of Mutual Funds in India (AMFI)** has requested the government to restore the **indexation benefit** for **debt funds** held for more than 36 months. If approved in future **Budgets**, this would make **Gilt Funds** more **tax-efficient** for long-term **investors**. **Example:** If you fall in the **30% tax bracket** and earn a **capital gain** of ₹10,000 from a **Gilt Fund** purchased after April 1, 2023, you will pay **₹3,000** as **tax** (30% of ₹10,000), regardless of how long you held the investment. --- ### How to Invest in Gilt Funds Using Sanchaay Karo App Now that you understand what a **Gilt Fund** is, the next step is **investing**. The easiest way is through the **Sanchaay Karo app**. **Sanchaay Karo** is a simple, trusted, and **SEBI-registered** mutual fund investment platform. It helps you invest in **top Gilt Funds** and hundreds of other funds with just a few taps. #### Why Choose Sanchaay Karo App for Gilt Fund Investment? - **Smart Goal-Based Investing**: Tell the app your goal (retirement, child's education, buying a house). It suggests the right **Gilt Fund** based on your **risk profile** and **investment horizon** - **Simple Dashboard**: See all your investments in one place – no confusion or clutter. Track **NAV**, **returns**, and **portfolio** in real time - **Quick KYC**: Complete your **KYC online** using Aadhaar and PAN in just 5 minutes. **Paperless KYC** is fully supported - **Start SIP from ₹500**: You don't need a lot of money. Start small with a **Systematic Investment Plan (SIP)** . You can do **monthly SIP**, **weekly SIP**, or **daily SIP** - **Track Performance**: Get regular updates on how your **Gilt Fund** is performing against its **benchmark** (like CRISIL Dynamic Gilt Index) - **No Hidden Charges**: Transparent and low-cost. You can choose between **regular plan** and **direct plan** options. **Direct plans** have lower **expense ratios** - **Stay On Track**: Get timely reminders so your **SIPs** never stop - **Access to All AMCs**: Invest in **ICICI Prudential Gilt Fund**, **Invesco India Gilt Fund**, **Nippon India Gilt Fund**, **Quant Gilt Fund**, **Axis Gilt Fund**, **PGIM India Gilt Fund**, and many more #### Steps to Invest in Gilt Funds (Very Easy) 1. **Download** the **Sanchaay Karo app** from Google Play Store or Apple App Store 2. **Sign up** using your mobile number and email 3. **Complete KYC** – upload **PAN card** and Aadhaar (fully paperless). You can also do **video KYC** if needed 4. **Search** for "Gilt Fund" or let the app recommend one based on your **financial goals** 5. **Compare** different **Gilt Funds** based on **returns**, **expense ratio**, **exit load**, **modified duration**, **yield to maturity (YTM)** , and **fund manager** track record 6. **Choose** between **lumpsum** (one-time) or **monthly SIP** investment. For **Gilt Funds**, **SIP** is recommended to reduce **timing risk** 7. **Pay** using **UPI**, net banking, or debit card 8. **Done!** Your investment starts growing. You will receive regular statements 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- ### Important Tips Before Investing in Gilt Funds Before you invest in a **Gilt Fund**, keep these points in mind: 1. **Understand the Interest Rate Environment**: **Gilt Funds** perform best when **interest rates** are falling or expected to fall. Check **RBI** announcements, **inflation** data, and **economic indicators** before investing. 2. **Check Modified Duration**: **Modified duration** shows how sensitive the **fund** is to **interest rate** changes. Higher **duration** means higher **volatility**. For **Gilt Funds**, **duration** can range from **5 to 10 years**. 3. **Check Yield to Maturity (YTM)** : **YTM** indicates the **portfolio's** current **income potential**. Higher **YTM** means higher expected **returns**. Most **Gilt Funds** have a **YTM** of **7.0% to 7.6%**. 4. **Have a Long Investment Horizon**: **Gilt Funds** need at least **3 to 5 years** to ride through **interest rate** cycles. Do not invest money you may need within 3 years. 5. **Use SIP, Not Lumpsum**: A **Systematic Investment Plan (SIP)** helps reduce **timing risk** by spreading your purchases over time. 6. **Limit Allocation to 10-20% of Debt Portfolio**: **Gilt Funds** should be a **satellite** part of your **debt allocation**, not the **core**. Most of your **debt portfolio** should be in **accrual-oriented funds** like **liquid funds** or **ultra-short duration funds**. 7. **Check Exit Load**: Most **Gilt Funds** have **nil exit load**. But always check the **Scheme Information Document (SID)** before investing. 8. **Compare Expense Ratios**: **Direct plans** have much lower **expense ratios** (often 0.30–0.50%) than **regular plans** (often 1.00–1.25%). Over time, this difference matters. 9. **Do Not Chase Past Returns**: A **fund** that performed well last year may not repeat it. Look for consistency over 3-5 years. 10. **Avoid for Short-Term Goals**: **Gilt Funds** are **not suitable** for **emergency funds** or money needed within 3 years. --- ### Frequently Asked Questions (FAQs) About Gilt Funds **Q1: Are Gilt Funds safe?** A: **Gilt Funds** have **zero credit risk** because they are backed by the **Government of India**. However, they carry **high interest rate risk**. Your **capital** is safe from **default**, but your **returns** can fluctuate significantly. **Q2: Can I lose money in Gilt Funds?** A: Yes, you can lose money in the **short term**, especially if **interest rates** rise sharply. **Gilt Funds** can experience **negative returns** during rising **rate** environments. However, if you hold for **3-5 years**, the chance of **loss** is lower. **Q3: What is the minimum SIP amount for Gilt Funds?** A: Most **Gilt Funds** allow **SIP** starting from **₹500** per month. Through the **Sanchaay Karo app**, you can start with as little as **₹500**. **Q4: How much returns can I expect from Gilt Funds?** A: Historically, **Gilt Funds** have delivered **6% to 8% annual returns** over 3-5 year periods. Over the past 15 years, the **Gilt Funds** category recorded **8.1%** annualised returns. **Q5: What is the difference between Gilt Funds and Banking & PSU Funds?** A: **Gilt Funds** invest only in **government securities** and have **zero credit risk**. **Banking & PSU Funds** invest in **banks** and **PSUs**, which carry a small amount of **credit risk** but offer more stable **returns** and lower **interest rate risk**. **Q6: How are Gilt Funds taxed?** A: For units purchased **after April 1, 2023**, all **gains** are added to your **income** and taxed as per your **income tax slab rate**, regardless of the **holding period**. **Q7: Can NRIs invest in Gilt Funds?** A: Yes, **NRIs** can invest in **Gilt Funds** through **Sanchaay Karo app** using their NRE/NRO account. **Q8: What is the expense ratio of Gilt Funds?** A: **Expense ratios** for **direct plans** typically range from **0.30% to 0.50%**. **Regular plans** have higher **expense ratios** (often 1.00–1.25%). **Q9: What is the exit load for Gilt Funds?** A: Most **Gilt Funds** have **nil exit load**. For example, **Invesco India Gilt Fund** has an **exit load** of **0.00%**. **Q10: Are Gilt Funds good for beginners?** A: **Gilt Funds** can be suitable for **beginners** who have a **long-term horizon** and understand that **returns** can be volatile in the **short term**. However, it is recommended to start with **liquid funds** or **ultra-short duration funds** first to understand **debt fund** basics. --- ### Final Words – Should You Invest in a Gilt Fund? **Yes**, if you: - Are a **conservative investor** seeking **zero credit risk** - Have an **investment horizon** of **3 to 5 years** or more - Expect **interest rates** to fall in the near future - Already have a **core portfolio** and want to add **diversification** with **Gilt Funds** - Are looking for potentially **higher returns** than **bank FDs** - Can tolerate some **NAV volatility** in the **short term** - Want to **diversify** your **portfolio** with an asset class that has a **low correlation** to **equity markets** **No**, if you: - Are a **short-term investor** with a horizon of less than 3 years - Have a **low risk tolerance** and cannot tolerate **NAV fluctuations** - Need your money back within **3 years** - Are looking for **guaranteed returns** – **FDs** may be more suitable - Expect **interest rates** to rise significantly **Gilt Funds** offer an excellent **balance** of **safety** (zero **credit risk**) and **return potential** (especially when **interest rates** fall). They are among the most transparent and well-regulated **debt fund** categories in India. The golden rule for **Gilt Fund** investing: **Understand the interest rate environment, check the fund's modified duration, have a minimum 3-year horizon, use SIP to reduce timing risk, and keep them as a satellite (10-20% of debt portfolio), not the core.** Start your **investment journey** today with the **Sanchaay Karo app**. 👉 **\[Click Here to Download Sanchaay Karo App Now\]** () --- **Disclaimer:** This blog is for **educational purposes** only. **Mutual fund investments** are subject to **market risks**. **Gilt Funds** carry **interest rate risk** and **NAV volatility**. Please read all **scheme related documents** carefully, including the **Scheme Information Document (SID)** and **Statement of Additional Information (SAI)** , and consult your **financial advisor** before investing. **Past performance** does not guarantee **future returns**. The **Sanchaay Karo app** is a platform for mutual fund investments; all investments are subject to **market risk**.