Top Gilt Funds to Invest in Indian Stock Market in 2024
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 (in cr) | Expense Ratio (in %) | 3Y CAGR (in %) | 5Y CAGR (in %) |
|---|---|---|---|---|
| ICICI Pru Gilt Fund | ₹6,325.16 | 0.56 | 6.67 | 8.21 |
| SBI Magnum Gilt Fund | ₹8,557.84 | 0.46 | 6.55 | 8.17 |
| DSP Gilt Fund | ₹755.18 | 0.59 | 6.26 | 8.06 |
| Edelweiss Government Securities Fund | ₹139.39 | 0.47 | 6.16 | 8.00 |
| Bandhan G-Sec-Invest | ₹1,661.18 | 0.45 | 5.91 | 7.92 |
| Kotak Gilt Fund-PF&Trust | ₹2,931.70 | 0.47 | 6.26 | 7.84 |
| ICICI Pru Constant Maturity Gilt Fund | ₹2,902.37 | 0.23 | 5.14 | 7.40 |
| Bandhan G-Sec-Constant Maturity Plan | ₹327.31 | 0.30 | 4.85 | 7.09 |
| SBI Magnum Constant Maturity Fund | ₹1,652.73 | 0.31 | 5.34 | 6.99 |
| DSP 10Y G-Sec Fund | ₹49.05 | 0.32 | 3.87 | 6.26 |
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.
Note: The list of top gilt funds is from 30th May 2024 and the data is derived from Tickertape Mutual Fund Screener.
🚀 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 2024
ICICI Pru Gilt Fund
ICICI Prudential Gilt Fund Direct Plan-Growth is a Gilt mutual fund scheme from ICICI Prudential Mutual Fund. As of 30th May 2024, the AUM of the fund is Rs. 6,325.16 cr. The fund’s expense ratio is 0.56%, which is close to what most other gilt funds charge. Since launch, the fund’s annualised performance has been 8.64%. In terms of composition, Government Securities make up the majority of the fund.
SBI Magnum Gilt Fund
SBI Magnum Gilt Fund is an open-ended Debt Scheme investing in government securities across maturity. The fund’s annualised performance has been 9.31% since inception. As of 30th May 2024, the AUM of the fund is Rs. 8,557.84 cr. The fund has an expense ratio of 0.46%. Furthermore, the Government Securities make up the majority of the fund at 92.83% along with the largest allocation towards G-Sec at 98.02%.
DSP Gilt Fund
DSP Government Securities Direct Plan-Growth is a Debt Mutual Fund Scheme introduced by DSP Mutual Fund. This mid-sized fund has an AUM of Rs. 755.18 cr. as of 30th May 2024. The fund has an expense ratio of 0.59%. The fund’s annualised performance has been 8.3% since inception. Furthermore, Government Securities makes up for the majority of the fund at 75.57% along with the largest allocation towards G-Sec at 94.53%.
Edelweiss Government Securities Fund
Edelweiss Government Securities Fund Direct-Growth is a Gilt mutual fund scheme from Edelweiss Mutual Fund. As of 30th May 2024, the gilt fund has an AUM of Rs. 139.39 cr. and an expense ratio of 0.47%. The fund has delivered reasonable returns as compared to other mid and short-term gilt funds. Additionally, the fund’s annualised performance has been 8.85% since inception. In terms of composition, Government Securities makes up for the majority of the fund at 90.45% along with the largest allocation towards G-Sec at 90.45%.
Bandhan G-Sec-Invest
Bandhan Government Securities Investment Plan Direct-Growth is a Debt Mutual Fund Scheme introduced by Bandhan Mutual Fund. As of 30th May 2024, the fund’s AUM is Rs. 1,661.19 cr. The fund’s annualised performance has been 8.94% since inception. The fund’s 5-yr CAGR is 7.93%. In terms of composition, Government Securities makes up for the majority of the fund at 97.23% along with the largest allocation towards G-Sec at 97.23%.
Kotak Gilt Fund-PF & Trust
Kotak Gilt Investment PF & Trust Direct-Growth is a Gilt mutual fund scheme from Kotak Mahindra Mutual Fund. The AUM of the fund is Rs. 2,931.70 cr. and the expense ratio is 0.47%. Since launch, the fund’s annualised performance has been 8.39%. In terms of composition, Government Securities make up for the majority of the fund at 97.7%.
ICICI Pru Constant Maturity Gilt Fund
ICICI Prudential Constant Maturity Gilt Fund Direct-Growth is a Debt mutual fund scheme launched by ICICI Prudential Mutual Fund. As of 30th May 2024, the AUM of the fund is Rs. 2,902.37 cr. and has an expense ratio of 0.23%. The fund’s annualised performance has been 8.81% since inception. Furthermore, the fund’s composition largely includes Government Securities which make up the majority of the fund at 98.18%.
Bandhan G-Sec-Constant Maturity Plan
Bandhan Government Securities Fund Constant Maturity Direct-Growth is a Gilt mutual scheme with 10-year Constant Duration from Bandhan Mutual Fund. This gilt fund has an AUM of Rs. 327.31 cr. The expense ratio of this fund is 0.30%. The fund’s annualised performance has been 8.95% since inception. The fund largely includes Government Securities which is 96.65% of the fund’s composition.
SBI Magnum Constant Maturity Fund
SBI Magnum Constant Maturity Fund Direct-Growth is a Debt mutual fund scheme Gilt from SBI Mutual Fund. The AUM of this long-term fund is Rs. 1,652.73 cr. and has an expense ratio of 0.31%, which is close to what most other Gilt with 10 10-year constant duration funds charge. In terms of performance, the fund has delivered 8.84% of annualised performance. Furthermore, the fund’s composition largely includes Government Securities that majorly hold 97.86% of the fund.
DSP 10Y G-Sec Fund
DSP 10Y G-Sec Fund Direct-Growth is a debt mutual fund scheme introduced by DSP Mutual Fund. As of 30th May 2024, the AUM of Rs. 49.05 cr. with an expense ratio of 0.32%. The fund’s annualised performance has been 7.56% since inception. The fund’s composition majorly includes Government Securities at 97.9%.
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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 to invest in 2024:
(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.
