are Gilt Funds?
funds are mutual fund schemes wherein funds are invested
exclusively in Government Securities
As in gilt funds
are done only in government securities (G-Secs), these are low risk
bearing investment options.
These are also referred to as Mutual Funds
dedicated exclusively to investments in Government Securities.
Government securities include central government securities, state
government securities and/or treasury bills.
is not possible for retail investors to directly invest in Government
Securities as the investment limit is quite high(5 crores). Probably
gilt funds are the only option through which a retail investor can
invest in Government Securities.
Who should Invest?
Funds are recommended for those looking for highest level of security
of their investment.
is also tax efficient investment option, if investment is made for a
period of more than three years. Gain on redemeption after three years
is considered as Long Terms Capital Gain. Long Term Capital Gain is
computed after providing indexation benefit. As a result net
liability is very less.
get the Gilt Funds at the best price, the right time to invest is when
the interest rates are high. When market interest rates are on higher
side, prices of G-Secs are on lower side. So keep a watch and whenever
you find interest rates are expected to fall, go for gilt
funds. At that
time you will get them at comparitively lower prices.
of Gilt Funds & Returns thereon?
Like other mutual funds Guilt funds also have
three types of options:
Under growth option all the gains/losses made on
investments are added/reduced to the NAV of the fund. Thus if things go
well, NAV rises over the time. Under growth option the amount remains
invested for the entire period till u reddem the fund. At the time of
redemption the funds are redeemed at final NAV. The investor will
realize long term gain/loss at the time of redemption.
dividend options, funds distribute the income earned by them to
investors in the
form of dividends. Funds are not under
any obligation to distribute dividend. If no income is made by the fund
ie. there are losses, no dividend is distributed. NAV of the
fund reduces with the
amount of dividend distributed to the investors/unit holders.
this option dividend is not paid to investor/unit holder, instead it is
reinvested. Means the dividend amount is used to invest in more units
of the scheme.
Returns on redemption?
Returns in the form of gains at maturity are mainly dependent
upon interest rates. A fall in interest
rates leads to a rise in fund prices. To have a good return from Gilt
Funds interest rate movement must be watched. We can say that right
time to redeem a Gilt Fund for a good return will be when there is a
fall in interest rates.
Lock in Period?
is no lock in period for Gilt Funds. However some charges (popularly
known as Exit
Load) may be levied on early exit from the funds. Many schemes do not have any exit load. Other schemes have exit load on early exit from 7 days
to 30 days.
if any (only in case of investment in Gilt funds with dividend option)
received from the fund will be taxable as income from other
- Taxability of gain on
redemption of gilt fund depends on the period of holding of fund. The
gain on redemption is taxable as capital gain.
funds are redeemed after 3 years or more there will be long term
capital gain. For calculating LTCG benefit of indexation is also given.
So keeping funds for long term reduces tax burden, as after indexation
the taxable gain is very less and long term capital gains are taxable
- If funds are redeemed within 3
years of holding, there will short term capital gain, which is taxable
as per the normal slab rate applicable to the investor.
in Gilt Funds Growth option is a smart choice for people
in 20-30% tax bracket with investment for three years or more.
Retired people can use Gilt
fund to earn almost tax free return as their regular income using
Systematic Withdrawal Plan.
For any clariication /
Suggestion feel free to write us at email@example.com
What is Exit Load?
What are Government Securities?