Gilt Mutual Funds – Debt mutual funds can be considered as safe option in Mutual Fund investment option. Gilt Funds are sort of debt fund that creates investment in government securities.
If you ask about that if you trying to find some sort of safe investment option. Should you opt for Gilt Funds? So, here is answer. Gilt funds are safe in their nature & suitable for low risk conservative category of investors. These funds have zero default risk. However, these type of mutual funds can have higher rate of interest risk. Interest rate movements affects these funds. Here goes the is end to end information about Gilt Mutual Funds which includes factors that you must consider while investing in Gilt Funds.
How do Gilt Mutual Fund Works?
The Gilt Mutual Funds are money market funds. Gilt Mutual Funds generally invests in the government securities with fixed maturity options. These types of government securities are issued by government time to time. As and when state or central government are in requirement of funds, the demand is formed to RBI (The Federal Reserve Bank of India). The RBI takes funds from the banks & insurance companies & lend this to the central and government . The RBI issues government securities against this funds. Gilt funds purchase these funds. Upon the maturity interest payout is received.
As per SEBI norms & regulations, gilt mutual funds have the mandate to invest minimum of 80% of their assets in the government securities. There are two sorts of gilt funds available within the market. First sort of fund make investment within the government securities with multiple maturity period. Whereas second sort of fund make investment within the government securities with fixed maturity period.
Factors to consider while investing Gilt Funds
Risk Associated with Gilt Mutual Funds:
Gilt Mutual Funds are no risk fund. These Mutual funds do make investments in government funds where risk of default on payment is almost to NIL. These fund only carry risk of change within the interest rates. In case of the rise in interest rates the NAV of Gilt mutual fund’s falls.
The return of gilt mutual fund majorly depends on the rate of interest changes. This fund offers return up to 8-10%. However, returns during this case isn’t fixed. This year gilt mutual fund has offered approximate of 4.65% return. In the last five years approximate returns have been in range of 9-10%.
Expense Ratio for Gilt Mutual Funds?
You should also consider Expense ratio while making investment within the Gilt Mutual Fund. The expense ratio is the fee, which is charged by fund management services. You should check out the fund with lower expense ratio.
Who should invest in Gilt Mutual Funds?
Gilt mutual fund is an alternative of fixed deposits and similar type of deposits. However, the fixed deposit offers fixed returns, whereas gilt mutual fund gives variable returns on the invested amount. These funds are not liquid in nature. If you’re trying to find frequent redemption you ought to not invest during this fund.
The risk adverse investors with conservative approach can consider investing in Gilt mutual funds. If you’ve got lower risk tolerance and you would like to stay to government securities these funds are for you.
These funds are for long term duration. You should not invest during this fund for brief term duration. In the short term duration, you’re likely to face losses.
If you’re conservative investor then also you ought to avoid gilt mutual funds. You should search for other investment options such fixed deposit or post.