Top Gilt Funds in India Based on 5Y CAGR
For those who prioritise capital preservation over growth, debt funds offer a reliable option. Among these, gilt funds stand out as a haven for conservative investors, offering a unique blend of safety and reasonable returns. In this article, we will delve into the world of gilt funds, exploring their characteristics, benefits, and suitability for investors seeking a low-risk investment option.
Top Gilt Mutual Funds Based on 5Y CAGR
| Fund Name | Fund Size (Rs. in cr) | Expense Ratio (in %) | 3Y CAGR (in %) | 5Y CAGR (in %) |
|---|---|---|---|---|
| Edelweiss Government Securities Fund | 174.90 | 0.51 | 7.02 | 7.58 |
| ICICI Pru Gilt Fund | 6,360.79 | 0.56 | 7.63 | 7.37 |
| Kotak Gilt Fund-PF&Trust | 4,094.00 | 0.47 | 7.28 | 7.26 |
| Kotak Gilt Fund | 4,094.00 | 0.47 | 7.27 | 7.25 |
| DSP Gilt Fund | 1,715.91 | 0.57 | 7.35 | 7.20 |
| SBI Magnum Gilt Fund | 11,262.18 | 0.46 | 7.66 | 7.15 |
| Axis Gilt Fund | 934.26 | 0.4 | 7.09 | 7.05 |
| Bandhan G-Sec-Invest | 3,658.06 | 0.52 | 6.71 | 6.94 |
| Aditya Birla SL G-Sec Fund | 2,027.35 | 0.49 | 6.65 | 6.90 |
| Aditya Birla SL G-Sec Fund | 2,027.35 | 0.49 | 6.65 | 6.90 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The list of top gilt funds is from 18th February 2025, and the data is derived from Tickertape Mutual Fund Screener using the following filters:
- Plan: Growth
- Category: Gilt – Long Term Fund and Gilt – Short & Mid Term Fund
- CAGR 5Y: Sorted from Highest to Lowest
🚀 Pro Tip: You can use Tickertape’s Mutual Fund Screener to research and evaluate funds with over 50+ pre-loaded filters and parameters.
Overview of the Top Gilt Funds in India
Edelweiss Government Securities Fund
Edelweiss Government Securities Fund primarily invests in central and state government debt, aiming to capture interest rate movements across various maturities. The fund’s portfolio emphasises securities with minimal credit risk and focuses on delivering reasonable returns for those seeking a conservative fixed-income approach.
ICICI Pru Gilt Fund
ICICI Pru Gilt Fund holds a range of sovereign bonds with different tenures, aiming to benefit from fluctuations in interest rates. It maintains high-quality holdings for investors who prioritise the safety of principal while looking for opportunities in government debt.
Kotak Gilt Fund-PF&Trust
Kotak Gilt Fund-PF & Trust concentrates on government securities that meet the needs of provident funds and trusts. Its strategy involves selecting bonds based on yield potential while adhering to guidelines suited for institutions with specific compliance requirements.
Kotak Gilt Fund
Kotak Gilt Fund invests in a broad spectrum of government securities with an eye on balancing duration and interest rate sensitivity. The fund is designed for individuals who want exposure to government debt instruments and are prepared for moderate shifts in bond prices over time.
DSP Gilt Fund
DSP Gilt Fund focuses on building a portfolio of sovereign bonds issued by the central and state governments. By, tracking changes in interest rates, it aims to provide a steady stream of income for investors who seek low credit risk in the fixed-income segment.
SBI Magnum Gilt Fund
SBI Magnum Gilt Fund allocates assets to government securities of varying maturities, watching for favourable rate environments. This approach seeks to preserve capital while offering the potential for modest capital gains when the interest rate outlook changes.
Axis Gilt Fund
Axis Gilt Fund predominantly holds treasury securities, intending to deliver stable returns in line with government bond yields. It caters to those who prefer instruments backed by the government, thereby reducing default concerns.
Bandhan G-Sec-Invest
Bandhan G-Sec-Invest invests in central government bonds to generate income and manage interest rate risk. The fund adjusts maturities based on market conditions, aiming to match investor goals of relatively lower credit exposure.
Aditya Birla SL G-Sec Fund
Aditya Birla SL G-Sec Fund maintains a portfolio of sovereign debt instruments while adjusting durations to align with evolving interest rate scenarios. This approach is suited to individuals who seek consistent returns and are comfortable with bond market price movements.
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What is a Gilt Mutual Fund?
Gilt funds are a type of debt mutual fund that primarily invests in government bonds, also known as G-Secs or government securities. These securities are backed by the full faith and credit of the government, making them virtually risk-free. As a result, gilt funds can be considered as the safest among debt fund categories, as they are not exposed to credit risk or default risk.
Gilt mutual funds invest in government securities with medium to long-term maturity periods, typically ranging from three years to twenty years. As per SEBI, the funds are required to invest at least 80% of their assets in government securities with the balance in cash and cash equivalents.
How Gilt Mutual Funds Work?
Gilt funds work by investing in Government Securities (G-Secs) issued by the Reserve Bank of India (RBI) on behalf of the State or Central Government. These securities have a fixed tenure and offer a fixed rate of return. When the securities mature, the fund returns them and receives a payout. Gilt funds are suitable for conservative investors seeking reasonable returns with minimal risks. However, they are affected by changes in interest rates, which can impact their returns.
Features of Gilt Funds
Here is a list of features of gilt funds:
- Safety: Gilt funds invest in government securities, which are backed by the government, making them one of the potential safest investment options in terms of credit risk. The government is highly unlikely to default on its debt, ensuring the safety of the capital invested in these funds.
- Returns: These funds offer moderate returns that are influenced by interest rate movements. When interest rates fall, the prices of existing government securities rise, which can lead to capital gains for gilt funds. Conversely, when interest rates rise, the value of these securities can fall, leading to potential capital losses.
- Liquidity: Gilt debt funds generally have good liquidity because government securities are in high demand and can be easily traded in the market. This allows investors to buy and sell these funds with relative ease.
- Interest Rate Sensitivity: The prices of gilt funds are sensitive to changes in interest rates. This means that the NAV of gilt funds can fluctuate significantly with interest rate movements, which can affect the returns that investors receive.
- Taxation: The taxation of gilt funds is similar to that of other debt funds. Short-term capital gains (STCG) are taxed as per the investor’s income tax slab if the investment is held for less than three years. Long-term capital gains (LTCG) are taxed at 20% with indexation benefits if the investment is held for more than three years.
Advantages of Gilt Funds
Here is a list of benefits of gilt mutual funds:
- Safety: Investments in gilt funds are backed by the government, which makes them virtually risk-free in terms of credit risk. The government is considered the most reliable borrower, and the likelihood of a government defaulting on its obligations is extremely low, ensuring the safety of the principal invested in these funds.
- Stable Returns: Gilt funds are known to provide stable returns, particularly in a falling interest rate environment. When interest rates decrease, the prices of government securities typically increase, leading to a rise in the Net Asset Value (NAV) of gilt funds, which translates to higher returns for investors.
- Liquidity: Gilt funds generally offer high liquidity due to the nature of the underlying securities. Government securities are in high demand and can be easily bought and sold in the market, allowing investors to enter and exit positions with relative ease.
- Diversification: Gilt funds can provide diversification benefits, especially for investors with a portfolio heavily weighted towards equities. By including gilt funds, investors can balance their portfolio with a low-risk asset class that has a different performance pattern compared to equities, potentially reducing overall portfolio volatility.
How to Invest in Gilt Funds?
Investing in Gilt Funds involves a few straightforward steps:
- Sign Up/Login: Select a reputable platform like a mutual fund website or financial institution. Fill out the necessary Know Your Customer (KYC) details online or offline.
- Search for Gilt Funds: Utilise the platform’s search feature to locate available Gilt Fund options.
- Review and Select: Examine the details, historical performance, and risk profile of the selected fund.
- Invest: Decide on the investment amount and proceed to complete the transaction.
- Monitor: Keep track of your investment and adjust as needed based on market conditions.
Who Should Invest in Gilt Funds?
Here is a list of investors who can consider investing in gilt funds:
- Investors Seeking Low-Risk Options: Gilt funds are suitable for investors who prefer to minimise their exposure to credit risk, as these funds invest in government-backed securities.
- Investors Seeking Stable Returns Over Medium to Long-term: Investors who are interested in achieving stable returns over a longer investment horizon may find gilt funds appealing, especially since these funds can perform well in a falling interest rate environment.
- Investors Aiming to Diversify Portfolio: Gilt funds can provide portfolio diversification for investors looking to balance their asset allocation with low-risk government securities.
Risks Involved While Investing in Gilt Mutual Funds
Here is a list of risks associated while investing in gilt mutual funds:
- Interest Rate Risk: The Net Asset Value (NAV) of gilt funds is sensitive to changes in interest rates. When interest rates rise, the market value of existing bonds falls, which can lead to a decrease in the NAV of gilt funds.
- Reinvestment Risk: This risk occurs when the cash flows from the fund, such as interest payments, have to be reinvested at a lower interest rate than the original investment. This can lead to lower overall returns for the fund.
- Market Risk: Although gilt funds are considered low-risk investments due to their government backing, they are not completely immune to market risk. Changes in market dynamics, such as fluctuations in demand for government securities, can affect the fund’s performance.
Taxability on Gilt Funds
Gilt funds are subject to capital gains tax based on the holding period of the investment that are mentioned as follows:
- Short-Term Capital Gains (STCG): Taxed as per the investor’s income tax slab if held for less than 3 years.
- Long-Term Capital Gains (LTCG): Taxed at 20% with indexation benefits if held for more than 3 years.
How to Calculate Returns on Gilt Funds?
Gilt Fund returns can be calculated using the formula for Compound Annual Growth Rate (CAGR):
CAGR = (Ending Value / Starting Value)^(1 / Number of Years) – 1
This formula helps in understanding the annual growth rate of the investment over a specified period.
To Wrap It Up…
Gilt funds are a low-risk investment option that offers moderate returns. They are suitable for investors with a medium-term investment horizon and are looking for a stable investment that can provide a steady income stream. However, investors should be aware of the interest rate risk associated with gilt funds and adjust their investment strategy accordingly.
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Frequently Asked Questions (FAQs) on Gilt Mutual Funds
Based on the 5-yr CAGR, the top 5 gilt funds in India:
(a) ICICI Pru Gilt Fund
(b) SBI Magnum Gilt Fund
(c) DSP Gilt Fund
(d) Edelweiss Government Securities Fund
(e) Bandhan G-Sec-Invest
Note: This information is intended for educational purposes and should not be construed as a recommendation or advice.
Gilt mutual funds invest primarily in government securities, including bonds issued by the central and state governments. These funds are considered low-risk since they are backed by the government.
Gilt funds can offer higher returns compared to fixed deposits in a falling interest rate environment. However, they come with interest rate risk, unlike fixed deposits which provide guaranteed returns.
While both are types of debt funds, gilt funds exclusively invest in government securities, whereas debt funds can invest in a variety of fixed-income securities, including corporate bonds.
Gilt funds invest in government securities, offering stable returns with low risk. Gold funds invest in gold and gold-related assets, targeting returns based on gold price movements, and carry a different risk profile.
