Close Menu
ExplicaExplica
    Facebook X (Twitter) Instagram
    Subscribe
    ExplicaExplica
    Facebook X (Twitter) Instagram YouTube
    • Home
    • Tech
    • Business
    • Entertainment
    • Health
    • Science
    ExplicaExplica
    Explica » Business » Gilt Funds: Safe Havens or Just a Market Hype?
    Business

    Gilt Funds: Safe Havens or Just a Market Hype?

    Jennifer SilvaBy Jennifer SilvaJuly 9, 20253 Mins Read
    Facebook Twitter Pinterest LinkedIn Reddit WhatsApp Email
    Gilt Funds Safe Havens or Just a Market Hype?
    Share
    Facebook Twitter Pinterest Reddit WhatsApp Email

    Gilt funds, which invest exclusively in government securities, have gained traction among Indian investors seeking. These mutual funds mainly invest money (over 80% of holdings) in government bonds issued by the Reserve Bank of India for the central government. These bonds can have different durations, ranging from a few years to as long as 30 years. In this article, we will cover whether these funds are a safe haven or a hype.

    Are Gilt Funds Safe Havens?

    Let’s look at howgilt funds can be a safe haven:

    Zero Credit Risk

    Gilt funds invest in government securities, which the central government backs. This means there is no credit risk involved, unlike corporate bonds, where defaults can happen. Investors are assured that the principal and interest will be paid, regardless of the economic situation.

    Falling Interest Rates

    Gilt funds tend to do well when interest rates decline. This is because, in the bond market, the value of existing government bonds with higher interest rates increases as new rates go down.

    Since gilt funds hold long-duration bonds, they see a significant capital appreciation during such phases. This makes them a strategic tool for investors who can time rate cycles. Unlike FDs or short-term debt funds, gilt funds offer dual benefits: safety of capital and potential for returns when interest rates fall.

    Transparent Holdings

    Unlike hybrid or thematic funds, gilt funds are very transparent in their holdings. Since they only invest in government securities, investors can easily analyse the portfolio quality and interest rate sensitivity.

    There is no ambiguity around what the fund manager is doing. Moreover, the portfolio does not contain any sectoral or equity risk, which is often a complication in other mutual fund categories.

    Inflation-adjusted Returns

    While not direct inflation beaters, gilt funds, such as SBI Magnum Gilt Fund, can offer inflation-adjusted returns in specific macro environments. During disinflation or controlled inflation periods, the capital appreciation from a bond price rise can outpace inflation.

    More importantly, when real interest rates turn positive (interest rates minus inflation), gilt funds can preserve and grow wealth better than bank deposits.

    Why Gilt Funds May Just Be Market Hype?

    Here are some downsides of gilt funds:

    Lack of Diversification

    Gilt funds invest only in government securities, so they lack diversification in terms of issuer type and credit risk. Unlike corporate or dynamic bond funds, they can’t switch to higher-yielding instruments when government bond returns decline. This limited flexibility hurts performance, especially when inflation outpaces yields.

    Poor Timing

    The performance of gilt funds heavily depends on timing the interest rate cycle, something even professional fund managers struggle with. If an investor enters when rates are low and rising cycles begin, the fund may underperform for years. Unfortunately, many investors enter such funds when past returns are high, only to see the returns crash later.

    Highly Interest Sensitive

    While they benefit from falling rates, gilt funds suffer heavily when interest rates rise. Because they hold long-duration government securities, even a small rate hike can significantly lower NAV. If the investor exits during a rising interest rate cycle, losses can be substantial, and capital erosion is real.

    Conclusion

    Gilt funds can offer stability and decent returns during falling interest rate cycles, thanks to their zero credit risk and government backing. However, they are not foolproof. Their high sensitivity to interest rate changes and lack of diversification can hurt returns if market conditions shift. So, are gilt funds safe havens or hype? The answer lies in timing and understanding.

    Share. Facebook Twitter Pinterest LinkedIn WhatsApp Reddit Email
    Previous ArticleThree Careers to Consider If You Enjoy Driving
    Jennifer
    Jennifer Silva

    Jennifer Silva has been a news editor at Explica.co for over two years. She has a degree in journalism from the University of South Florida and is passionate about writing and reporting the news.

    Related Posts

    The Complete Guide to MEV-Resistant Trading Strategies

    July 7, 2025

    Why Setting Financial Goals Is Important

    July 3, 2025

    How Fractional CFOs Are Helping Companies Weather Economic Uncertainty

    July 2, 2025

    QuilCapital.com Review: Discover Innovative Trading Solutions & Advanced Technology

    July 1, 2025

    What Should You Really Bring on a Remote Working Retreat (and What Can Stay Home)?

    June 26, 2025

    Are Your LPs Still Guessing? Here’s What Smart Fund Managers Do Instead

    June 26, 2025
    Follow Us on Google News

    Subscribe to Updates

    Get the latest news directly to your inbox.

    • Facebook
    • Twitter
    • Instagram
    • YouTube
    • LinkedIn
    • Reddit
    Gilt Funds: Safe Havens or Just a Market Hype?
    July 9, 2025
    Three Careers to Consider If You Enjoy Driving
    July 9, 2025
    Overview of Personal Injury Representation in Orlando
    July 9, 2025
    What Keeps Gamers Coming Back? A Look at Reward Loops in Entertainment Apps
    July 8, 2025
    The Legal Paper Every Startup Needs—How This Keeps You on Track?
    July 8, 2025
    A Beginner’s Guide to Navigating the Technology Used in the Booming Online Gaming Market
    July 8, 2025
    What Are Cell Line Development Platforms and Why Do They Matter?
    July 7, 2025
    The Complete Guide to MEV-Resistant Trading Strategies
    July 7, 2025
    Explica
    Facebook X (Twitter) Instagram YouTube LinkedIn RSS
    • Contact Us
    • Write For Us
    • About Us
    • Privacy Policy
    Explica.co © 2025

    Type above and press Enter to search. Press Esc to cancel.