Gilt funds invest at least 80% of their corpus in government securities, making them extremely susceptible to interest rate changes
These funds essentially lend to the government, resulting in zero credit risk and no defaults
Gilt funds are a low-risk investment strategy, appealing to those seeking a government-backed, low-risk option
Investment Strategy
Gilt Funds
Investment Objective
To invest at least 80% of the corpus in government securities
Portfolio Composition
Government papers and lending to the government
Key Benefits
Zero credit risk, no defaults, and attractive yields
Gilt Funds: A Low-Risk Investment Option
Gilt funds are a form of mutual fund that invests in fixed-interest generating securities issued by the central and state governments. These funds are particularly suitable for ‘aggressive’ or’sophisticated’ debt investors who are seeking superior returns in a low-interest rate environment. “The Reserve Bank of India (RBI) is expected to cut interest rates in the coming months, and gilt funds are poised to benefit from this trend“, says a mutual fund advisor. “However, investors need to be aware that gilt funds are inherently risky, as they are sensitive to changes in interest rate scenarios.”
In order to reduce risk, gilt funds invest at least 80% of their corpus in government securities, which provides zero credit risk and no defaults. However, this does not eliminate the risk of interest rate changes. When the Government of India requires funds, it approaches the RBI, which acts as a banker by lending money borrowed from entities like insurance companies and banks. In exchange for the lent amount, the RBI issues fixed-tenure government securities subscribed by the fund managers of gilt funds. Upon maturity, these funds return the securities and receive the principal amount.
The Groww Gilt Fund: A New Player in the Market
The recent entrant, Groww Gilt Fund, has opened its New Fund Offer (NFO) to provide investors with a government-backed, low-risk option. The fund plans to allocate a minimum of 80% of its assets to government securities across various maturities. “The Groww Gilt Fund aims to diversify portfolios by reducing risk during market uncertainty and offering liquidity through the flexibility to enter or exit due to the liquid nature of government securities”, says a representative from Groww Mutual Fund. The fund plans to achieve its objectives through a low-risk investment strategy, which aligns with the expectations of investors seeking a safe haven in the current market environment.
Gilt Funds in 2025: A Season of Low-Risk Investment
In 2025, gilt funds are witnessing strong investor interest as market volatility and rate cycle uncertainties push investors toward low-risk, sovereign-backed assets.
