What are Gilt Funds?

Podcast Duration: 6:48
What are GILT funds? Voice Over- Hello doston, Angel One ek aur investing special podcast mein aapka swagat hai. In today’s podcast, we will explain what gilt funds are, inke benefits, disadvantages aur other considerations you should know about before investing. Intro, part 1 Doston koi bhi investment karne se pehle it is very important ki aap uske baare mein sab kuch jaan le. After all, aap apna paisa aise hi fund mein daalenge jispar aapko poora bharosa ho. So, agar aapne gilt funds ke baare mein haal hi mein suna hai, and want to know everything about these investments, sunte rahiye. Gilt funds are a type of debt funds jinka investment primarily bonds ya fixed-income government securities mein hota hai. Inko ``gilt” funds isi liye kaha jata hai because the government bonds used to be issued with a certificate jiske edges ``gilded”, ya golden colour ke hote the. Sebi rules ke according, gilt funds must invest at least 80% of their assets in government securities. In funds ka investment aise instruments mei hota hai jo alag-alag time pe mature ho rahe ho. Lekin, there is also a type of gilt fund jo 10 years ka constant maturity period offer karta hai. Aise funds ko mandatorily apne 80% assets 10 saal ke maturity period wali government securities mein invest karna hota hai. How it works, part 2 pe chalte hain. Doston aap soch rahe honge, why does the government offer gilt funds? Central government ko kisi infrastructure project ya koi aur kaam ke liye loans ki zarurat ho sakti hai. This is when it approaches the Reserve Bank of India for funds. Ab, RBI commercial banks ya insurance companies se ye funds borrow karke government ko deta hai. In exchange for this money, the RBI issues fixed-tenure government securities. Gilt funds ke managers in securities ko subscribe kar lete hain aur mature hone par, ye securities return karke apna payout le lete hain. Gilt funds are an investment in reliable government securities and offer mid to long-term returns. Sounds like a good investment, right? But it’s not that simple. Fund managers gilt funds har kisi ko recommend nahi karte. The reason is that gilt funds carry a high interest rate risk. But aap soch rahe honge government securities mein high risk kaise ho sakta hai? Here’s how: Jab RBI interest rates reduce karne lag jata hai, government securities ki demand rise hoti hai kyuki inpe interest rates high hote hain. As a result of high demand, the price of the security rises and the yield declines. This is called the inverse relationship between the yield and price of bonds. Lekin, jab RBI policy rates increase karta hai ya pause karta hai, uska effect opposite hota hai. In that situation, naye bonds ka interest rate badh jata hai aur purane bonds ka rate kam ho jata hai. In such a situation, the prices keep falling but the yields keep increasing. Evidently, jab interest rates decline ho rahe hote hain, gilt funds tend to perform well. The price and net asset value of these funds rise with a fall in interest rates. Isiliye, fund managers gilt funds unhi investors ko recommend karte hain jinko bond market aur money market ki samajh hoti hai. Part 3, yani Advantages and Disadvantages ki baat karte hain. Now let’s start off talking about the good things, shall we? Here’s why gilt funds are a good investment-- Compared to corporate bonds, gilt funds bohot liquid hote hain aur koi credit risk nahi carry karte. This is because they are backed by government securities and the government is not expected to default on its payments. This way, aapka capital protected rehta hai. If you invest at the right time, in this case when interest rates are falling, toh gilt funds aapko 12% tak ke returns de sakte hain. In fact, jab economic conditions down hoti hain, gilt funds can offer potentially higher returns than equity funds as well. Doston kayi government securities ka access aapko as a retail investor nahi milega. But by investing in a gilt fund, you can also get this access indirectly. Isiliye gilt funds mein invest karna aapki financial wellbeing ke liye ek accha decision ho sakta hai. Drawbacks Before you make up your mind about investing in a gilt fund, ek baar in funds ke drawbacks dekh lein. Interest rate risk gilt funds mein naa invest karne ka sabse bada reason hai. As explained earlier, interest rates rise hone par gilt funds ki value drop hoti hai. If you are a seasoned investor with some knowledge of the market, aap is risk ko avoid kar sakte hain. Sabhi mutual funds ki tarah gilt funds bhi ek annual fee charge karte hain. This is called the expense ratio. Ye ratio gilt fund ke total amount ka ek percentage hota hai. This expenditure is the operating cost of the fund, and can change according to the manager's investment strategy. Kisi bhi gilt fund mein invest karne se pehle uska expense ratio samajhna bahut zaruri hai. Gilt funds ka maturity period generally 3-6 years ka hota hai. So, before you choose to invest in such a fund, ensure ki aapka investment horizon is maturity period ke saath align ho raha hai. With gilt funds, you can make use of interest volatility over the medium term agar aapka objective wealth accumulation hai. Additionally, jab capital markets down hote hain, gilt funds can act as a safe short-term investment. Doston, yaad rakhiyega ki aap gilt funds se jo bhi capital gains banate hai, wo taxable hote hain. 3 years se kam time period mein banaye gaye gains pe short-term capital gains tax applicable hota hai. Agar aapne 3 year se zyada time mein profit kiya hai, aapko 20% long-term capital gains tax with indexation pay karna hoga. The bottom line is - gilt funds mein invest karna is a very time-sensitive decision. If you are confident that you will be able to identify when to enter and exit, gilt funds ek bahut safe aur rewarding investment ho sakte hain. That’s all from today’s podcast. Before you go, yaad rakhiye ga ke stock market investing mein risk hamesha hota hai. This podcast has been made for educational purposes only and as an investor aapko thoroughly dusre sources se bhi research karna chahiye. Aise aur interesting podcasts sunne ke liye humein youtube aur social media channels par follow karein. Until then goodbye and happy investing! Investments in the securities markets are subject to market risks. Read all the related documents carefully before investing. Sources https://www.indiainfoline.com/mutualfunds/what-is-a-gilt-fund-gilt-fund-meaning-features-risk-and-returns https://economictimes.indiatimes.com/mf/analysis/what-are-gilt-funds/articleshow/76425288.cms https://economictimes.indiatimes.com/mf/analysis/what-are-gilt-funds/articleshow/76425288.cms https://groww.in/p/debt-funds/gilt-mutual-funds/