Best Gilt Mutual Funds in India

Vikram was brave king. He went back to the graveyard and pulled Betaal down. Put him on to his shoulder. As he started walking back, Betaal said, “I will tell you about Gilt Mutual Funds and then ask a question. You must tell me the answer otherwise I will break your head. But if you speak I will fly back to the tree.” Vikram agreed.

Betaal started with his story.

What are GILT mutual funds

Betaal started explaining Vikram, “Vikram, Gilt is type of Mutual fund which predominantly invest in debt instruments issued by the Indian Government.

This is very similar to your citizens keeping their money with you king Vikram. As per SEBI guidelines, at least 80% of money should be in such instruments. So you see these funds carry no default risk.

King or Government will not default on its repayment and in worse case can print the money and return back.”

How does Gilt Mutual Funds work

Betaal continued, “Vikram, you as king must be thinking of doing development in the Kingdom. So does Government. So when they need money, they would issue debt papers with help from RBI.

Gilt Mutual Funds invest in such instruments. As the time period completes, they get their money back.”

What are risks in Gilt Mutual Funds

Betaal whispered in Vikram’s ears, “Vikram, I know what you are thinking. If there is no default risk, this is best for everyone. Afterall they are trusting you or government.

No. That is not the case. Gilt fund do have risk of interest rate increase.

It is like this Vikram, if you invest in Gilt Funds when interest rate is say 6 % and say a year later you or the government increases interest rate to say 7% then valuation of earlier issued instruments get adjusted.

So people will not loose the entire capital anytime but they do have chance to get less returns with such funds.

Of course, other way round is true as well. If interest rates drop after you invest then returns will be higher as old instruments will be in demand. Their valuation and in turn people’s returns will increase significantly,”

Returns of Gilt Mutual Funds

“I know Vikram, you are wondering about the returns “ Betaal spoke, “This is what most people are interested in. As you know by now Mutual Funds do not guarantee returns. If we look at past performance of gilt funds, what we see is as follows ( worse and best funds )

2016 – approximately 13 to 19%

2017 – approximately -0.24 to 4.97

2018 – approximately 5.23 to 9.03

2019 – approximately 8.38 to 13.86

2020 – approximately 8.83 to 14.82

Overall we can see returns fluctuate a lot and so one should not consider them for short term. In long term, generally they seem to comfortably beat fixed deposit rates.”

What to look out for in Gilt Mutual Funds

“A king who loves his citizens would be thinking of this. I can read your mind, Vikram” Betaal continues with his story. “If you are listening carefully till now, you would know returns fluctuate mainly due to interest rate changes.

Common people can gauge but can’t really predict when interest rates would change. But one thing they can lookout is average maturity period of instruments in Gilt fund they are investing in.

Generally longer the maturity, impact of interest rate change is more. Returns can be very high if interest rate drops or vice versa. Of course if you have pulse on interest rate, you can benefit using that knowledge. But that is for very rare cases.”

Taxation of Gilt Mutual Funds

“Let me now talk about Tax. Though I am on your back, I could sense why you are excited my King.“ said Betaal, “These are taxed like any other debt fund. If investor sells before 3 years then he will pay you King or his government STCG or short term capital gain tax at the same rate as per income of investor.

Investors can take benefit of Indexation and can pay LTCG or long term capital gain tax at rate of 20% after indexation only if they hold it for more than 3 years. I think it is in line with nature of Gilt funds to invest for medium term.”

List of some good Gilt Mutual Funds

“So you must be wondering which are good gilt funds currently “, Betaal said in low voice as if he is revealing some secret and did not want anyone else to listen. “Some funds that have shown better consistency are

Also would suggest to take direct plans of Gilt Mutual Funds. There is around 0.5% better returns compared to regular plans as you save commission. I used to be using apps like Kuvera before entering the body!”


“So tell me King Vikramaditya,” said Betaal. “Who should invest in Gilt Mutual Funds?”

King Vikramaditya thought and then said, “Gilt funds deserve to be in some peoples portfolio. They are of course not suitable for everyone and every goal. They are suitable for conservative investors looking for debt fund without any default risk.

Since they are volatile in short term, not everyone should go for them. They can be considered as alternative to fixed deposits but with time horizon of 5 years or so.

I will suggest people to do their own research or consult their Financial Advisor before taking any decision. Even I consult cabinet of ministers for important matters especially of money.

I thank you for educating me on Gilt Mutual Funds. Knowledge is worth sharing with my entire kingdom via WhatsApp, Facebook & Twitter.“

Betaal said, “You are absolutely right King. I must say you are really intelligent. But you spoke and I will go back to tree.”

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