Gilt Fund can be good investment

 Gilt Fund can be good investment for short term

 The year 2020 began in an environment and time in which the capital market suffered both a decline and a boom. For this reason, investors are also not able to trust much to put money.

  In a volatile environment, gilt funds can prove to be a better investment for a short period. Because of this money is invested in government securities. It brings both trust and big returns.

In this article we will provide some information about this fund.

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  What is a Gilt Fund?

Whenever the state or central government needs funds, it asks the Reserve Bank of India (RBI). The RBI collects the required funds from banks and insurance organizations and lends it to the state / central governments.

In return, the Reserve Bank of India issues G-Sec or government securities with a fixed tenure. Gilt funds subscribe to these securities. Once the security matures, the fund returns it and receives payment.

In other simple words, gilt funds are a type of mutual fund schemes that invest primarily in government securities. In this scheme,the fund manager will invest your money in government securities which issued by government through the Reserve Bank of India (RBI). 

These government securities include dated Central Government Securities, State Government Securities and Treasury Bills.

  Investors do not have any kind of credit risk after investing in gilt funds, as these securities are guaranteed by the central government. These funds invest in lodge term government securities papers.

How many types of Gilt Fund? 

There are two types of Gilt Fund
Short-term mutual funds -
Under this, investments are made in short-term government bonds, which are of very short duration. These mutual funds generally mature in the next 15–18 months. Since these funds are supported by the state or central government, there is no credit risk and there is less risk of change in interest rates due to their short term maturity.

Long-Term Mutual Fund - It invests in long-term government bonds. Their maturity period is from 5 years to 30 years. The longer the maturity period of government securities in gilt funds, the greater the possibility of interest rate changes.

Calculation of Taxes and Fees required in Gilt Fund

While investing in gilt funds, management fees are charged like other funds. Which SEBI has determined 2.25% of the total management assets. No fund manager can charge more than this.

So while investing money in the fund, one must also calculate his management fee. Like other funds, it also has to pay tax according to the period of investment. Which is determined by short term capital gains and long term capital gains.

Is it the best time to invest in short term Gilt Fund?

This is a better time to invest in gilt funds as the RBI has cut its policy interest rates significantly.

 Decreasing interest increases the returns from gilt funds. The RBI has cut the repo rate by 2.5% so far this year and the rates are at a 20-year low.

So, making short-term investments in gilt funds can be profitable. However, making long-term investments can be risky, as there is more scope for interest rates to rise during this period, leading to lower returns.

It is important to keep an eye on interest rates

Those investing in funds have to closely monitor the interest rates. You have to know when to exit the plan and when to invest. Interest rates in the market are determined by government securities and corporate bonds, hence the interest on returns has a significant impact. 

Before putting money in Gilt fund, one should get a thorough knowledge of the risks and returns from your fund manager.