Best Gilt Funds Sorted by Last 3 Year Returns

Fund Name
AUM
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3Y Returns
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Ratings
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ICICI Prudential Gilt Fund Direct Plan Growth

ICICI Prudential Gilt Fund Direct Plan Growth

Debt Gilt Fund

₹4,864.57 Cr.

6.48%

5

ICICI Prudential Gilt Fund Direct Plan IDCW Payout

ICICI Prudential Gilt Fund Direct Plan IDCW Payout

Debt Gilt Fund

₹4,864.57 Cr.

6.47%

5

ICICI Prudential Gilt Fund Direct Plan IDCW Reinvestment

ICICI Prudential Gilt Fund Direct Plan IDCW Reinvestment

Debt Gilt Fund

₹4,864.57 Cr.

6.47%

5

SBI Magnum Gilt Fund Direct Plan Growth

SBI Magnum Gilt Fund Direct Plan Growth

Debt Gilt Fund

₹7,884.27 Cr.

6.1%

5

Kotak Gilt Investment Regular Payout of IDCW Direct Payout

Kotak Gilt Investment Regular Payout of IDCW Direct Payout

Debt Gilt Fund

₹2,931.70 Cr.

5.99%

4.5

Kotak Gilt Investment Regular Reinvestment of IDCW Direct Reinvestment

Kotak Gilt Investment Regular Reinvestment of IDCW Direct Reinvestment

Debt Gilt Fund

₹2,931.70 Cr.

5.99%

4.5

Kotak Gilt Investment Regular Growth Direct

Kotak Gilt Investment Regular Growth Direct

Debt Gilt Fund

₹2,931.70 Cr.

5.99%

4.5

Kotak Gilt Investment Provident Fund and Trust Growth Direct

Kotak Gilt Investment Provident Fund and Trust Growth Direct

Debt Gilt Fund

₹2,931.70 Cr.

5.99%

4.5

TATA Gilt Securities Fund Direct Plan Growth

TATA Gilt Securities Fund Direct Plan Growth

Debt Gilt Fund

₹522.98 Cr.

5.95%

2

TATA Gilt Securities Fund Direct Plan Payout of IDCW Payout

TATA Gilt Securities Fund Direct Plan Payout of IDCW Payout

Debt Gilt Fund

₹522.98 Cr.

5.93%

2

TATA Gilt Securities Fund Direct Plan Reinvestment of IDCW Reinvestment

TATA Gilt Securities Fund Direct Plan Reinvestment of IDCW Reinvestment

Debt Gilt Fund

₹522.98 Cr.

5.93%

2

DSP Gilt Fund Direct Plan Growth

DSP Gilt Fund Direct Plan Growth

Debt Gilt Fund

₹755.19 Cr.

5.93%

4.5

DSP Gilt Fund Direct Plan IDCW Payout

DSP Gilt Fund Direct Plan IDCW Payout

Debt Gilt Fund

₹755.19 Cr.

5.81%

4.5

DSP Gilt Fund Direct Plan IDCW Reinvestment

DSP Gilt Fund Direct Plan IDCW Reinvestment

Debt Gilt Fund

₹755.19 Cr.

5.81%

4.5

Edelweiss Government Securities Fund Direct Plan IDCW Payout

Edelweiss Government Securities Fund Direct Plan IDCW Payout

Debt Gilt Fund

₹139.39 Cr.

5.74%

4

Edelweiss Government Securities Fund Direct Plan IDCW Reinvestment

Edelweiss Government Securities Fund Direct Plan IDCW Reinvestment

Debt Gilt Fund

₹139.39 Cr.

5.74%

4

Edelweiss Government Securities Fund Direct Plan Growth

Edelweiss Government Securities Fund Direct Plan Growth

Debt Gilt Fund

₹139.39 Cr.

5.74%

4

Edelweiss Government Securities Fund Direct Plan Monthly IDCW Reinvestment

Edelweiss Government Securities Fund Direct Plan Monthly IDCW Reinvestment

Debt Gilt Fund

₹139.39 Cr.

5.73%

4

Edelweiss Government Securities Fund Direct Plan Monthly IDCW Payout

Edelweiss Government Securities Fund Direct Plan Monthly IDCW Payout

Debt Gilt Fund

₹139.39 Cr.

5.73%

4

Aditya Birla Sun Life Govenment Securities Fund Direct Quarterly IDCW Payout

Aditya Birla Sun Life Govenment Securities Fund Direct Quarterly IDCW Payout

Debt Gilt Fund

₹1,368.84 Cr.

5.7%

4

Aditya Birla Sun Life Govenment Securities Fund Direct Quarterly IDCW Reinvestment

Aditya Birla Sun Life Govenment Securities Fund Direct Quarterly IDCW Reinvestment

Debt Gilt Fund

₹1,368.84 Cr.

5.7%

4

Aditya Birla Sun Life Government Securities Fund Growth Direct Plan

Aditya Birla Sun Life Government Securities Fund Growth Direct Plan

Debt Gilt Fund

₹1,368.84 Cr.

5.7%

4

Aditya Birla Sun Life Government Securities Fund Growth Direct Plan

Aditya Birla Sun Life Government Securities Fund Growth Direct Plan

Debt Gilt Fund

₹1,368.84 Cr.

5.7%

4

PGIM India Gilt Fund Direct Plan Growth

PGIM India Gilt Fund Direct Plan Growth

Debt Gilt Fund

₹122.41 Cr.

5.61%

2.5

PGIM India Gilt Fund Direct Plan Quarterly Dividend Payout

PGIM India Gilt Fund Direct Plan Quarterly Dividend Payout

Debt Gilt Fund

₹122.41 Cr.

5.61%

2.5

PGIM India Gilt Fund Direct Plan Quarterly Dividend Reinvestment

PGIM India Gilt Fund Direct Plan Quarterly Dividend Reinvestment

Debt Gilt Fund

₹122.41 Cr.

5.61%

2.5

Nippon India Gilt Securities Fund Direct Plan P F Option Automatic Capital Appreciation Payout Payout

Nippon India Gilt Securities Fund Direct Plan P F Option Automatic Capital Appreciation Payout Payout

Debt Gilt Fund

₹1,546.55 Cr.

5.58%

2.5

Nippon India Gilt Securities Fund Direct Plan Growth

Nippon India Gilt Securities Fund Direct Plan Growth

Debt Gilt Fund

₹1,546.55 Cr.

5.58%

2.5

Nippon India Gilt Securities Fund Direct Plan P F Option Automatic Annual Reinvest Option

Nippon India Gilt Securities Fund Direct Plan P F Option Automatic Annual Reinvest Option

Debt Gilt Fund

₹1,546.55 Cr.

5.58%

2.5

Nippon India Gilt Securities Fund Direct Plan P F Option Defined Maturity Date Option

Nippon India Gilt Securities Fund Direct Plan P F Option Defined Maturity Date Option

Debt Gilt Fund

₹1,546.55 Cr.

5.58%

2.5

About Gilt Mutual Funds

  • Investors can have two major investment objectives – capital appreciation and capital preservation. While capital appreciation comes with high risks, capital preservation comes with relatively lower risks. Gilt mutual funds are suitable options for those looking for capital preservation.
  • Gilt funds are a type of debt fund that is considered to have the lowest risk among other mutual funds. This is because they only invest in bonds and fixed-interest securities issued by the Central and State Governments. The underlying securities have varying interest/coupon rates and maturities. As per the Securities and Exchange Board of India (SEBI) mandate, gilt mutual funds have to invest at least 80% of their pooled money in government securities. In contrast, the remaining can be invested in other types of bonds.

How do Gilt Funds Work?

When the government needs financial resources, it turns to the highest financial authority in the country, the Reserve Bank of India (RBI), which also serves as the government’s financial institution. The RBI acquires the necessary funds by collecting money from various sources, including banks and insurance companies, and then extends loans to state and central governments. 

In return for these loans, the RBI issues government securities known as G-secs, which come with a fixed time frame. These G-secs are then subscribed to by Gilt Funds, financial entities that specialise in investing in such government securities. When these securities reach their maturity date, the Gilt Fund returns them and receives a corresponding payout.

For more risk-averse investors, Gilt Funds represents an attractive investment option, offering a balanced combination of reasonable returns and minimal exposure to financial risks. However, it’s essential to be aware that Gilt Funds are influenced by fluctuations in interest rates.

Features of a Gilt Mutual Fund

  1. Market volatility: Since gilt funds are required to invest at least 80% of the fund in G-secs and lack in equity exposure, they are free from the impacts of market volatility.
  2. Interest rate regime: Although these funds are free from market risks, they are prone to the risks of changing interest rates. The NAV of a gilt fund is inversely proportional to rising interest rates. Gilt funds are known to offer better returns when the interest rates are on a falling spree than when they are rising.
  3. Returns: Gilt fund returns are not guaranteed as they depend on interest rate changes, which is noteworthy as the government typically borrows for a longer duration. However, they can offer 10-15% returns in a falling interest rate regime.
  4. Expense ratio: As with all other mutual funds, gilt funds also charge a fee called expense ratio towards fund management. This fee is charged annually, decreasing your returns to that extent.
  5. Maturity: Gilt funds come with short-to-medium and long investment horizons. You can choose to invest in a fund with a suitable maturity.

Advantages of Investing in Gilt Mutual Funds

  1. Low to no credit risk: Since gilt funds invest majorly in government securities, the associated credit risk is almost nil as the government rarely defaults on repayment. This means your returns are close to stable.
  2. No market risk: Compared to equity and hybrid funds, gilt funds have significantly lower risks as they don’t have equity exposure.
  3. Moderate but almost stable returns: As the risk-reward rule goes, gilt funds offer relatively lower returns for low risk. However, their returns are mostly higher than most fixed-income investments like Fixed Deposits (FD) and Recurring Deposits (RD).
  4. Access to exclusive G-Secs: Not all government securities are accessible for retail investors; some are only available for institutional fund houses. However, you can invest in such exclusive securities by investing in gilt funds.
  5. Tax-efficient for high-income earners: For conservative investors falling under the higher-income bracket, gilt funds are more tax-efficient than fixed deposits.

Risks Involved in Gilt Mutual Funds

  1. Interest rate risk: Although gilt funds are devoid of credit and market risks, these are sensitive to the risk of changes in the interest rate. Generally, gilt funds tend to perform better in a falling interest rate regime than in a rising trend. Given that the government borrows for longer periods, the changes in interest rates impact the performance of these funds.
  2. Inflation risk: For the same reasons that government securities have a longer maturity period, gilt funds may not offer inflation-adjusted returns.
  3. Illiquidity: Gilt funds have a pre-fixed lock-in period, which makes them highly illiquid. Investors cannot exit these funds as per their wish. However, there are gilt funds with no lock-in period as well.
  4. Lower returns: As gilt funds are low-risk, they offer lower returns than equity and hybrid mutual funds. Further, returns also fluctuate in line with the changes in the repo rate.
  5. Incorrect entry and exit timing: Knowing when to enter and exit gilt funds is the key to earning profits. As a rule of thumb, these funds generate better returns during recessions. Therefore, entering such funds during a market boom may not be favourable.

Factors To Consider Before Investing in Gilt Mutual Funds

Gilt funds can provide stable returns and are considered relatively safe. However, a careful assessment of factors can help you pick a fund that suits your profile:

  1. Interest Rate Sensitivity: Gilt funds primarily invest in government securities, making them highly sensitive to interest rate changes. When rates rise, bond prices fall, affecting fund returns. Assess your tolerance for interest rate risk.
  2. Investment Horizon: Consider a longer investment horizon when opting for gilt funds, as they may experience short-term fluctuations. These funds are ideal for long-term goals.
  3. Credit Risk: Gilt funds are considered low-risk due to government backing. However, they can still have minimal credit risk, particularly in the case of state government bonds. Verify the fund’s credit quality.
  4. Expense Ratio: Lower expense ratios can enhance your returns over time. Compare fund expenses and opt for cost-effective options to maximise gains.
  5. Tax Efficiency: Gilt funds offer tax benefits on capital gains when held for more than 3 years. Understand the tax implications to optimise returns.

Who Should Invest in Gilt Funds?

  1. Conservative investors: Gilt funds are ideal for investors with a very low-risk tolerance because they don’t invest in high-risk investments like corporate bonds or stocks but only in government securities (G-secs).
  2. Investors looking for capital preservation and moderate returns: These are probably the best funds for investors whose only investment objective is the safety of their capital while earning moderate returns.
  3. Investors looking for short-to-long periods: Gilt mutual funds come in short- to medium-term and long-term variants. Therefore, investors can park their funds in a gilt fund in line with their preferred investment horizon.
  4. Investors looking for portfolio diversification: Those looking to diversify their portfolios by adding low-risk investments can invest in gilt funds.
  5. Investors looking for actively managed funds: Those looking to earn somewhat stable returns in the market but don’t have the time or knowledge to do so can opt for gilt funds, as the portfolio manager actively manages the funds on their behalf.
  6. Investors looking for assured returns during market downturns: Since gilt funds are known to perform well during a falling interest rate regime, investors looking to earn stable returns in a market downturn can consider these.
  7. High-income bracket investors: Gilt funds are more tax-efficient than fixed deposits in terms of taxation when it comes to investors falling in the higher-income bracket.

Taxability of Gilt Funds

Capital gains earned from gilt mutual funds attract taxes depending on the holding period:

  1. Returns from gilt fund units held for less than 3 years are treated as short-term capital gains. These are added to your annual income and taxed as per your income tax slab.
  2. Whereas returns on units held for more than 3 years qualify as long-term capital gains and are taxed at 20% with indexation.

When an investor earns dividends on their gilt mutual fund, the dividends are considered as a part of their taxable income. They are subject to taxation at the applicable rate based on their income tax bracket. Also, there is a 10% TDS on the dividend amount if it exceeds Rs. 5000 in a financial year.

How to Invest in Gilt Mutual Funds?

Investing in Gilt Mutual Funds through your Angel One account is a streamlined process that involves a few simple steps:

Step 1: Begin by logging in to your Angel One account using your registered mobile number. After logging in, validate the OTP (One-Time Password) for security purposes, and then enter your MPIN to access your account.

Please note that if you don’t have a Demat account with Angel One, you can open one quickly by completing the KYC (Know Your Customer) procedure and submitting the necessary documents.

Step 2: Once you’ve successfully logged in, it’s time to choose the most suitable mutual fund based on your financial needs and risk profile. You can evaluate various funds by navigating to the mutual fund section on the Angel One app. During this stage, consider the following factors:

  • Search for the specific fund you wish to invest in or take recommendations from funds listed by Angel One across different categories.
  • Analyse the fund’s historical performance, tax implications, constituent sectors, and the stocks it comprises.
  • Utilise the provided calculator to estimate potential returns.
  • Assess the level of risk associated with the fund and compare it to your risk tolerance.
  • Check the fund’s ratings assigned by reputable rating agencies, typically on a scale from 1 to 5.
  • Take note of the fund’s expense ratio, which provides insight into the cost of investing in it.

Step 3: After finalising the fund(s) you want to invest in, navigate to your Angel One account’s Mutual Funds section and search for your chosen fund. Since investing in mutual funds often involves a long-term commitment, exercise caution when selecting the fund(s) you intend to invest in. During this stage, consider the following:

  • Decide whether you want to invest a lump sum amount or set up a monthly Systematic Investment Plan (SIP).
  • Enter the investment amount you are comfortable with and choose your preferred payment method. UPI is the recommended mode, but you can also opt for net banking.
  • After placing your order, if you’ve chosen the SIP investment route, you can establish a mandate for hassle-free future instalments.

Top 5 Gilt Mutual Funds

Name Sub Category AUM (in ₹ crore) Minimum Lumpsum (₹) CAGR 3Y (%) CAGR 5Y (%)
Bandhan G-Sec-Invest Gilt – Short & Mid Term Fund 1409.88 1000 5.54 8.40
DSP G-Sec Fund Gilt – Short & Mid Term Fund 420.94 500 5.72 8.35
Edelweiss Government Securities Fund Gilt – Short & Mid Term Fund 119.69 5000 6.49 8.23
ICICI Pru Constant Maturity Gilt Fund Gilt – Long Term Fund 563.25 5000 5.17 8.23
Bandhan G-Sec-Constant Maturity Plan Gilt – Long Term Fund 214.03 1000 4.43 8.21

The above-mentioned top funds are for informational purposes only and are not recommendations. The funds are based on a 5-yr CAGR, which is subject to change frequently. Check out real-time data on Angel One.

Bandhan G-Sec-Invest

This short- and mid-term fund has an AUM of ₹1,409.88 crore. The fund tracks the CRISIL Dynamic Gilt Index and has an expense ratio of 0.62%. Bandhan G-Sec-Invest fund comes with no exit load or lock-in period. 98.17% of its assets are invested in sovereign debt holdings.

DSP G-Sec Fund

This is also a short and mid-term gilt fund. Having an AUM of ₹420.94 crore, this fund carries an expense ratio of 0.54%. It aims to replicate the performance of the CRISIL Dynamic Gilt Index. DSP G-Sec Fund has a sovereign debt holding of 68.89%. It has no lock-in period and exit load.

Edelweiss Government Securities Fund

Having an AUM of ₹119.69 crore, Edelweiss Government Securities Fund is a short and mid-term gilt fund. It has an expense ratio of 0.66% and 0 exit load and lock-in period. The fund tracks the Nifty All Duration G-Sec Index and has an 84.11% sovereign debt holding.

ICICI Pru Constant Maturity Gilt Fund

This long-term gilt fund has an AUM of ₹563.25 crore. The fund’s expense ratio is 0.23%. It has no exit load and lock-in period. The fund invests 96.94% of its assets in sovereign debt holdings. ICICI Pru Constant Maturity Gilt Fund tracks the Crisil 10 Yr Gilt Index.

Bandhan G-Sec-Constant Maturity Plan

Having an AUM of ₹214.03 crore, Bandhan G-Sec-Constant Maturity Plan is a long-term gilt fund. Sovereign debt holdings make up 99.10% of its assets. It has an expense ratio of 0.49%. The fund tracks the Crisil 10 Yr Gilt Index. It has no exit load and lock-in period.

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Gilt Funds FAQs

Are gilt funds high risk?

No. Guilt funds are low-risk mutual funds. This is because they invest in government securities, which hardly carry any credit risk, meaning the government would not default on repayments.

Should I invest in gilt mutual funds?

It depends on your investment objective. You can consider investing in gilt funds in case you have low-risk tolerance and moderate return expectations. These funds are also worth considering if capital preservation is your main investment objective.

What are the expected returns of gilt funds?

Gilt funds are known to yield 10-15% returns per annum. However, the returns are sensitive to changes in the interest rate. Gains from gilt funds tend to be lower in a rising interest rate regime than in a falling trend.

What are the risks involved in investing in gilt funds?

Gilt funds are sensitive to the risk of interest rate changes. They tend to perform better in a falling interest rate regime than in a rising trend. Further, funds that invest majorly in G-Secs with longer maturity periods may not offer inflation-adjusted returns.

Are gilt funds taxable?

Yes. Gilt funds attract capital gains taxes depending on the holding period. Short-term capital gains are added to your annual income and taxed as per your income tax slab. Long-term capital gains are taxed at 20% with indexation.

How much money should I invest in gilt funds?

It depends on your investment objective, risk profile, and financial goal. Investing too much in gilt funds will give you low returns at low risk. However, depending on your risk tolerance, gilt funds can take up an ideal portion of your portfolio to add stability.