Home Banking How do GILT Funds work? Four Things You Need to Know

How do GILT Funds work? Four Things You Need to Know


There are 16 different categories of debt funds in India, with GILT funds being one of them, according to SEBI’s classification of mutual funds. To learn more about them, how they operate, and more, see this post.

Through G-Secs (Government Securities), the government borrows money from the financial markets to cover its fiscal deficit. In accordance with their maturities, the securities are either long-term or short-term.

As they have a maturity of one year or more, Dated Securities or Government Bonds are referred to as long-term securities. Then there are short-term securities having maturities of less than a year, such as T-Bills (Treasury Bills). Through the recently opened RBI Retail Direct platform, individual investors can purchase these government assets. Access to these assets is also provided by numerous stockbrokers.

As an alternative, investors can think about making investments in GILT funds to benefit from these low-risk assets. Let’s examine the GILT fund’s definition, operation, and other details.

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1. What are India’s GILT Funds?

In India, there are 16 different varieties of debt mutual funds. The risk level differs among these 16 categories, even though debt funds are renowned for having reduced potential risk. At the low end of the risk scale are GILT funds.

These mutual funds place G-Secs across maturities in at least 80% of their holdings. These programs are known to carry less risk because the majority of the investment is made in government-backed securities.

2. GILT Funds: How Do They Operate?

GILT funds operate as follows, in a brief explanation:

1. In order to pay for the budget imbalance, the government intends to borrow money.

2. Banks and insurance firms are sources from which the RBI obtains the necessary funds.

3. The RBI lends the money it has collected to the government. 4. In exchange for the loan amount, the RBI prints G-Securs with set maturities.

5. GILT fund managers buy these securities to earn interest income.

6. When the G-Secs mature, the RBI receives them and pays the pre-determined interest.

Although GILT funds invest primarily in government assets that are considered to have almost minimal non-payment risk, the programs do involve some risk. Government borrowing often has longer terms, therefore there is always an interest rate risk associated with these funds.

3. Who Should Put Money Into GILT Funds?

You should think about contributing to a GILT fund if

You are a cautious investor.

Consider investing in a GILT mutual fund if you are a risk-averse investor who does not feel comfortable investing in debt funds where the majority of the investment is made in corporate bonds, such as bond funds or credit risk funds. At least 80% of the fund’s total assets will be invested in government-backed securities that don’t pose credit issues.

You want to create a diversified portfolio.

To reduce risk, it’s critical to have a diversified portfolio and stay away from overexposure to any one asset type. GILT funds can be a good addition to your portfolio if your investment philosophy is similar to mine because they give you access to low-risk government assets.

Your time horizon for investing is three to five years

GILT funds may be the best option for medium-term investment tenures lasting three to five years or longer. GILT mutual funds should be included in your portfolio if you want to store your money for a specified amount of time.

4. What variables ought to you take into account before investing in GILT Funds?

the following should be carefully examined before investing in GILT funds:

Factor at Risk

On the sum it borrows from the RBI, the government is required to pay interest. These programs don’t include credit risks because, in general, the government never defaults on its payment obligations. The swings in interest rates, however, affect them greatly. The returns produced by these programs may be considerably impacted if interest rates rise suddenly.


The management fee levied by fund houses is known as TER, or Total Expense Ratio. Choose a GILT fund with a low TER when making your selection; a greater TER will have a negative impact on your results. The TER of the selected scheme should, if not be the lowest, at least be comparable to the category average.

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GILT Funds Should Be Included in Your Portfolio

Making an informed investment selection requires a thorough understanding of the GILT fund’s purpose and operation.

A risk-averse investor may choose to consider GILT funds as an investment. In order to create a varied portfolio, you might also think about investing in these programs.

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