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Gilt And Debt Mutual Funds: All You Need To Know

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Gilt And Debt Mutual Funds: All You Need To Know
Rajat Mishra - 27 February 2020

After deciding to invest rather than saving, one thing everyone is eyeing on is the safety of their money and the capital appreciation with the passage of time. But they are confused and unaware as to where they should invest in to accomplish all aforementioned goals.

Debt Mutual Funds

Amidst the range of mutual funds one class that can assure you in terms of safety of the money is debt mutual funds. Unlike equity mutual funds, debt mutual funds invest in debt instruments such as corporate bonds, government securities, treasury bills, and commercial papers.

Debt mutual funds range between three months to one year from three years to five years. Thus depending on the time frame there are short-term debt funds and medium-term debt funds. For example, liquid funds invest for not more than 91 days.

Gilt Mutual Fund

Gilt funds are the class of mutual fund that primarily invests in government securities, as the investment is in government securities thus there is less risk factor. As there are very bleak chances of the government defaulting on their loan repayments. These funds are usually meant for long-term investment.

As far as the data about the gilt fund returns are concerned the performance of gilt funds has been very volatile. These mutual funds are very sensitive to interest rate changes. The gilt fund in the past has offered returns over 12.75 per cent in one year.

Taxation and expense ratio

One thing that we should be aware of is that capital gains from gilt funds are taxable. The rate of taxation is directly proportional to your holding period. A capital gain made in less than three years is short-term gain and capital gain made over three years is a long-term gain. The expense ratio is the management and operation cost charged by your fund manager. As per Sebi’s notification in 2018, the expense ratio was capped at 2.5 per cent.

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Expense Ratio And Mutual Funds: All You Need To Know

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