Investors of gilt funds have received double digit returns in the last one year. In the dynamic gilt fund category, returns of 11 per cent have been achieved. The ten-year gilt fund returns have reached 11.7 per cent.
Right now, gilt funds are looking attractive in terms of investment. But the question is, can we invest in them only on the basis of better returns. Investors use gilt funds strategically in two ways. When interest falls, investors invest in it and redeem it as soon as the interest rate is high. Under the second strategy, investors invest in it for a long time.
Better returns, then why not invest?
Investors of gilt funds have received double digit returns in the last one year. In the dynamic gilt fund category, returns of 11 per cent have been achieved. The ten-year gilt fund returns have reached 11.7 per cent. In such a situation, investors may find it attractive. With the benefit of return in double digits, investors do not have to worry about credit risk in it because it is sovereign guarantee of the central government. What is the risk in investing when there are so many positive aspects?
What do experts say?
Analysts have a slightly different opinion about investing in gilt funds. They believe that retail investors should stay away from these funds. Even though there is no credit risk, these funds are quite sensitive to interest movement. It is not so easy for retail investors to keep an eye on interest rates. Therefore, high volatility in it can give negative returns. If the retail investor is not taking the advice of a financial adviser, then it is better to avoid investing in gilt funds as much as possible.
According to investment advisors, only those investors who have a good understanding of the money or bond market should invest in these schemes. These schemes are highly sensitive to interest rate movements. Hence the timing of entry and exit also matters a lot. These schemes do very well in an environment of declining interest rates. But, as soon as the interest rates increase, they start losing.
What is a gilt fund?
Gilt funds are a category of debt funds. These schemes invest in government securities. As per SEBI regulations, gilt funds are required to invest at least 80 per cent of their assets in government securities. There are two types of gilt funds. One who invests in government bonds maturing in different periods. Secondly, they invest in government securities with a maturity of 10 years.
Nidhi Malviya is fun loving girl. She writes at NoobFeeds about various topics related to Finance, Technology, Business etc.