Best Gilt Funds To Invest In India 2021 To Benefit As A Good Alternative To Equities

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oi-Roshni Agarwal

| Updated: Saturday, July 10, 2021, 22:06 [IST]

For risk averse investor class or those with moderate risk appetite taking a dig into the equities when they are trading at record high may neither be an option nor can be a good idea given some of the conditions. So, what best can be the take is to look for alternatives which are equally good if not that rewarding.

Herein we want to discuss a similar class of mutual fund category that given the government’s policies has been the winner. So, if you happen to get that we here in will ponder on the various aspects of gilt mutual funds and which have been the top rated and top performing mutual funds in this category.

Salient features of Gilt Funds

1. Gilt funds are debt funds that are given the mandate to invest 80% in G-securities and hence highly secure and safe in nature in comparison to equities. So, by and large your investment participate or are put in government funded infra projects as well as for other expenditure.

Interestingly these investments are typically into securities issued for funding various

2. These G-securities oriented funds rise in the falling interest rate regime i.e. when the interest rates are lower in the economy. Like as was in the current case, when RBI given the Covid impact last year resorted to rate cutting spree and the yield on G-securities reduced from 8% to now currently around 6%. Notably, lower yield tend to benefit bonds as there is an inverse relationship between bond yields and bond prices.

3. Gilt funds thus in all and all provides the best investment alternative with low risk and optimal returns higher than other fixed income instrument such as the bank FD (taxation matter is still to be discussed, though).

4. Further what investors need to note that these funds on an average carry a maturity time frame of 3-5 years, so they need to ensure that their investment goal’s investment horizon is well is line with the fund’s maturity time frame.

Is the right time to invest in Gilt Funds?

Yes probably, we would say this is because given the inflationary rate of above 6 percent for CPI which came in for May month (reported in June), RBI has been left with headroom to cut rates any further. Now in fact we may see interest rates in the economy to be inching any time higher as and when the growth concern is addressed, so this can be the best time to in fact put in our surplus if we are comfortable with optimal returns.

Returns from Gilt funds

These funds can generate returns of up to 12% and of all the Gilt-fund, the highest 5-year return from the category has been the highest at 9.5%.

Top Gilt Funds That Delivered Highest Return in 5 years

1. IDFC Government Securities Fund-Investment Plan-

The fund’s AUM has been a good over Rs. 1968 crore. The CRISIL4 Star rated fund charges an expense ratio of 1.23% and carries an NAV of 27.94 as on July 9, 2021. Benchmark of the fund has been CRISIL 10 year Gilt index.

The fund’s 49% corpus is into G-securities. Further when talking about the returns of the fund it has been over 9 percent for 5-year return, while 3-year return has been at 11.30 percent.

SIP in the fund can be started for as less as Rs. 1000 while for lump sum payment Rs. 5000 are to be shelled out.

Top holdings of the fund are into margin money as well as GOI securities of various maturities ranging from that in 2026-2029.

2. DSP Government Securities Fund-Direct Plan-Growth:

The fund’s direct plan is relatively old while its direct plan is in existence for 8 years now. Benchmark of the fund is I-Sec Li-Bex.

AUM under the fund is Rs. 461.95 crore and the fund is primary with the objective of generating income for its investors, though its realization may or may not be assured.

The fund has managed to deliver a return which is better than post office small savings scheme such as PPF. Fund managers managing the fund are Mr. Vikram Chopra and Mr. Saurabh Bhatia.

SIP and lump sum investments into the fund can be started for just Rs. 500.

Top fund holdings include TREPS/ Reverse repo investments, 7.26% GOI securities dated 2029 etc.

The return from the fund over a term of 5 years has been 9.48%, while 3 years returns has been over 11 percent.

3. Nippon India Gilt Securities Fund- PF – Automatic Capital App

This is a CRISIL 3-Star rated fund from the house of Nippon India and for the direct plan carries an expense ratio of 0.61 percent as on May 31, 2021. Value Research has also accorded 3-Star rating to the fund. Fund size of this GILT fund is Rs. 1373 crore.

Fund is majorly invested into G-securities i.e. over 90% and hence falls in the moderate risk category. Over a 5-year tenure, the fund has yielded an annualized return of close to 10% i.e. of 9.93%, while its 3-year return have been at 11.06%.

SIP in the fund can be started for just Rs. 100, while for lump sum investment you need to shell out a minimum of Rs. 5000. The benchmark of the fund is CRISIL Dynamic TRI.

Some of the top holdings are G-securities, state development loan, margin money and interest rate swap. The fund thus has been able to deliver above average 5-year return.

Taxation of Gilt fund:

For gilt fund, if capital gain is earned in a holding period of less than 3 periods it is referred to as short term capital gain and tax shall be charged based on the investor’s tax slab while for long term capital gains that will be a flat rate of 20% with indexation benefit.


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