Best Gilt Mutual Funds to invest in 2020 in India

Best Gilt Mutual Funds to invest in 2020Best Gilt Mutual Funds to invest in 2020 in India

Stock markets taking correction. Investors are worried about their money, which is getting vanished from each and every correction. Interest rates are falling. If you are looking to invest in falling interest rates in India, you can pick-up some of the top Gilt mutual funds. In this article, we would provide details about Gilt Funds, best gilt mutual funds to invest in 2020 and also indicate who can invest in these gilt mutual funds.

What are Gilt Mutual Funds?

Gilt Mutual Funds would invest in fixed income instruments / securities issued by state or central government in India. These investments are generally used for infrastructure projects funded by government.

How does a Gilt Funds work?

Here is how the gilt mutual funds work.

1) Whenever Govt of India requires funding, they would approach RBI who acts as banker to Government.

2) In order to provide funding to Govt of India, RBI would approach investors and corporates for borrowing.

3) RBI would issue short term or long term government securities to investors.

4) Gilt mutual fund manager would subscribe to such government securities issued by RBI.

5) Upon maturity, Gilt fund manager would return the instruments and RBI would pay the investment back.

6) Since these are issued by RBI on behalf of the government of India, these are considered as a safe investment option.

7) These gilt funds would provide stable returns, however these are generally low compared to returns from equity mutual fund schemes.

How would Gilt Mutual Funds perform?

Gilt mutual fund performance is highly dependent on interest rates. If the interest rate is going up, the NAV of the fund would fall. If the interest rates are going down, the NAV of the fund would would increase.

Best Gilt Mutual Funds to invest in 2020

The top and best gilt mutual funds to invest in 2020 are:

Best gilt Mutual Funds to invest in 2020 in India

FAQs about Gilt Mutual Funds

1) What is the difference between gilt and debt fund?

Gilt funds invest in short and long term government securities which are safe investment options. On the other hand, debt funds are classified as short term debt funds, medium term debt funds and long term debt funds. Based on the investment objective these debt funds would invest in commercial paper, NCDs, bonds, securities etc. issued by corporates. Debt funds have become high risk these days due to defaults from corporates on the repayment of debt instruments issued by them.

2) Is it good to invest in gilt funds?

Gilt funds would invest in government securities for short term to long term. They have interest rate risk. However, if you are a low risk investor and looking for moderate returns along with safety of principal, you can consider investing in Gilt funds.

3) Do gilt funds have a lock in period?

Gilt funds invest in government securities that has a maturity period in short term to long term. If you are investing in long term gilt funds, these would have 2 to 5 year lock-in period. You need to check the mutual fund prospectus before investing.

4) When should I invest in Gilt Funds?

Guild funds are good for low risk investors who are looking for stable returns. You might be thinking “when should I invest in gilt funds”. You should invest in gilt funds when you expect that interest rates would fall in coming months or years. One should not invest when interest rates are expected to increase as the returns of these funds would be negative in this scenario.

5) What is 10g gilt or 10 year gilt fund?

Guilt mutual funds would invest in government securities for short and long term. 10 year gilt funds are those which invests in government securities that matures in 10 year period.

6) Which are the best gilt funds as per valueresearch?

Valueresearch rates the mutual funds from 5 star to 1 star (Highest is good and vice versa). Here are the top rated mutual funds from valueresearch in Gilt segment that have > Rs 500 AUM.

Nippon India Gilt Securities – 5 Star

ABSL Govt securities – 4 Star

DSP Govt securities – 4 Star

IDFC Govt Securities – 4 Star

SBI Magnum gilt fund – 4 star

7) What are Gilt Funds Risks?

Gilt funds major risk factor is interest rate risk. If interest rates go up, the NAV of gilt funds would fall. Hence, one should not consider investing in these funds if you expect interest rates to go up in near future.

8) Are Gilt Funds Safe?

Gilt funds invest in government securities. This does not mean it is 100% safe. There is interest rate risk. One should NOT invest in these funds if you think interest rates are expected to go up. However, based on the investment objective (short, medium or long term), if you are sticking to these funds, you need not worry about such risks as short term performance is not that what you look for. You can safely invest in such funds.

9) Are gilt funds tax free?

Gilt fund capital gains are taxed like any other debt fund. Capital gains within 3 years would be taxed as per short term capital gains. Any gains beyond 3 years would go as per long term capital gains.

10) Should we invest in gilt funds now?

Gilt funds are best to invest when interest rates are in a down trend. Currently interest rates are in a declining trend, hence it is good to invest in gilt funds now.

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Suresh KP

Best Gilt Mutual Funds to invest in 2020

Suresh KP


  1. There is no credit risk with a Gilt Fund provided the manager of the fund has not invested in obligations of non-government entities.
    The past one and half years were good for Gilt funds, dynamic bond funds (they invested significant amounts in gilts), 10 year G sec funds. However, expect rates to go up (despite govt efforts) and that can, as the article says, hurt returns.
    There is a pressing need for Short Term Gilt funds ( that will invest in government bonds with remaining maturity below five years). Such funds can give more stable returns.
    There is NO such offering in the market.
    Short term bonds sold in the market carry credit risks and are best avoided.

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