Gilt Fund – Meaning, Features, Risk & Returns – Udariyan

What Is a Gilt Fund?

Fromask briefly describes the Gilt fund. The Gilt fund is a fund of British investment that invests in Gilt securities which are equivalent to US treasury securities in the U.S. There it was founded and is currently headquartered in the UK and utilizes Gilt funds for its investments primarily.

Understanding Gilt Funds

Gilt funds are among the most conservative fixed-income investments in the market. They trade primarily in British government bonds, also known as gilts on the London Stock Exchange.

Gilt funds may also be found in India and other former colonies of the U.K. that still offer this type of investment due to their historic designations as British territories, like Bangladesh, Hong Kong, and Pakistan.

While it’s generally seen that gilt investments are issued by governments, they can also be generally issued by companies on exchanges like the London Stock Exchange or even through private company debt issuance with a Cash investing agreement to repurchase offered through a financial instrument known as an IOR (Instrument of Repayment).

Generally called “gilts” or “gilt-edged securities”, these highly-rated blue-chip capital instruments aren’t just limited to government bonds but include stocks and private debt securities (these were previously referred to in the UK as consoles).

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Gilt funds are available in both the U.S. and the UK, but each is slightly different from one other. A UK gilt fund invests primarily in gilts or treasury bills.

In contrast, U.S. money market funds invest primarily in commercial paper and only occasionally take a small amount of investment in the best high-interest savings account in U.S treasuries up to 1-year maturity for liquidity purposes and as a matter of diversification.

How do Gilt Funds Work?

How do Gilt Funds Work?

If the Government of India needs more funds (or loans), then it approaches the Reserve Bank of India (RBI). Apart from being the top bank, the RBI also acts as a banker to the government.

The RBI lends money to the government after borrowing from other entities such as insurance companies and banks. In exchange for the loan, the RBI issues gilt-edged security to which fund managers subscribe.

Upon maturity, this gilt-edged fund returns the securities and receives money in return. For an investor, a gilt-edged fund can be an ideal blend Ally Invest of low-risk and reasonable returns. However, the performances are highly dependent on movements interest rates. So, a falling interest rate regime would be the best time to invest in gilt-edged funds.

Who Should Invest in Gilt Funds?

Who Should Invest in Gilt Funds

Gilt funds invest in government bonds ranging from a medium to long-term horizon. These funds provide the kind of security essential to satisfy the needs of investors who prefer low-risk investment avenues.

They are not the same as bond funds because the latter may allot a part of its assets in corporate bonds which are quite risky and earn moderate returns, unlike gilt funds which collect low-interest payments associated with high creditworthy debt instruments. 

 Compared with that of an equity fund which many find to be riskier due to its higher potential for growth, while also offering paltry returns, a gilt fund provides stability as well as security and is often thought by many to be one’s best bet when it is comes time to make a sound, secure investment with Fidelity Go(e.g., pension funds).

Things to consider as an Investor

Things to consider investing in Gilt funds

Risk factor

  • No corporate bond funds are as liquid as gilt funds. These instruments don’t carry credit risk because the government gives backing to them.
  • This is because even if the investor can’t afford his share of the debt, the government will cover it.
  • However, gilt funds do suffer from interest rate risk. The NAV of this type of portfolio drops sharply during times of increasing interest rates.


At Gilt, we’re able to offer some pretty substantial benefits. For example, a few of the perks that members enjoy include access to various types of event tickets as well as incentives for hitting certain weight loss goals.

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We’ve also really gotten behind environmental sustainability over the years, so Gilt encourages our members to recycle and compost by awarding credits for doing so. By purchasing Gilt credits, you’ll be participating in programs that support things like the Community Energy Program which we use to fund renewable energy initiatives around New York City.


Gilt funds charge annually a fee called the expense ratio, which covers the cost of running the fund. This is a percentage of their average assets under management. Since December 2016, expense ratios on debt mutual funds have been capped at 2.25%.

But operating costs depend on investment strategy. For example, a dynamic approach means to buy and sell securities based on changes in interest rates.

Investment Horizon

Gilt funds are offered by investors across the globe in almost every country in the world. Below are a few examples.

Janus Henderson U.K. Gilt Fund

Henderson U.K. Gilt Fund invests in a portfolio of UK gilts. It is managed by Janus Henderson, which invests in blue-chips from various sectors such as pharmaceuticals and banking among others. For the period under review which spans one year, the fund recorded around 8.98% for 2020, beating the MSCI Europe’s return of 2.46%.

iShares Core U.K. Gilts UCITS ETF

The iShares Core U.K. Gilts UCITS ETF invests solely in U.K.-government-issued securities. One year return for the Fund from December 2019 to December 2020 was 8.20%.

Gilt funds invest in government bonds, which can have maturities that last anywhere from four to 10 years for example. The longer maturities mean you will be sitting on your investments for longer than usual; however, the lower risk levels mean that your investment should remain steady for those who can keep their holdings for the long term.

Tax on Gains

Capital gains from various gilt funds are taxable. The minimum holding period is 182 days (6 months) in a financial year and the fund manager file taxes accordingly.

If you hold assets for more than one year inside your EPF/NPS, then capital gains from such investments are considered Long Term Capital Gains (LTCG), which attracts a lower tax of only 20% with indexation benefits.

How to Invest in Gilt Funds?

How to Invest in Gilt Funds?

Investing in gilt funds for someone who’s never invested before may seem arduous at first but with the help of ClearTax, you can set up your account to start the investment cycle with a few simple steps:

  • Sign in at
  • Enter your details such as the amount of investment and period of investment
  • Get your e-KYC done in less than 5 minutes
  • Invest in your favorite gilt fund from amongst the hand-picked mutual funds

U.K. Government Gilts

U.K. Government Gilts

You must have heard the popular term gilts, and it stands out as a British type of security. Gilt can be considered as a kind of financial instrument, which is issued by the UK’s government. It will mature after 10 to 30 years and pay a sovereign yield onset interest dates.

It is also interesting to note that various types of gilts take different forms. They come in 3 major flavors – conventional gilts, index-linked gilts, and strips.

Conventional gilts

With the uncertainty of the post-Brexit world, a conventional U.K gilt issued by the UK government allows for semi-annual coupon payments on debt.

The gilts are issued with durations of five, 10, 30, 50, or 55 year maturity periods although 5 and 10-year gilts have not been issued since 2009 as demand is often unfavorable when it comes to investing in such bonds that mature so quickly.

Index-linked gilts

An index-linked gilt is a type of security that enables investors to earn income with an asset portfolio based on the connection between inflation rates and financial markets.

The principle is that when the inflation rate fluctuates, investors also obtain varying coupon payments every six months based on this change depending on whether their bonds are linked to the Retail Price Index or of the Consumer Price Index.

The former works on a formula more indirect than the latter, which has more stability during periods of low inflation.

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Strips are a type of fixed income that makes an investor money. Strips are different from other types of bonds in that they represent the interest, or coupon payment, and not the full repayment on a bond’s principal.

Exposure to government securities

The retail investors who want to gain exposure to government-issued debt instruments currently can only do so via investing in government securities funds.

Minimal credit risk

Some investors avoid risk. But the truth is, there are a lot of options for you when it comes to investing. You don’t have to put all your money in the stock market if you’re nervous that you might lose some cash.

You can also invest in things like gilt funds, where most of the money spent on securities goes towards government issues and guaranteed bonds. When it comes to possible credit risk, as long as you’re dealing with government-guaranteed investments, they won’t fail on your before any other obligation does.

Excellent returns

Gilt funds are professionally managed investments that typically yield returns on a quarterly to biannual basis without imbibing the underlying risk that comes from investing in individual securities.

These investment options are best suited for people with relatively short to medium-term portfolios.

Why does the UK government sell bonds?

Bonds are a form of government-backed debt. In Britain, gilts are one type of bond and represent a certain amount of value invested in the British economy.

How do UK government bonds work?

How do UK government bonds work

Government bonds have a lot in common no matter which country they are issued by! They’re named differently depending on the country, but there are some key features they all share:


Maturity represents the time before maturity when a loaned amount may still be repaid or interest and profit paid. If a bond is maturing, it’s simply that there is an expiry date after which the original capital invested would be returned to the bondholder without that new income.

Maturity dates vary greatly, but a regular hourglass will show you they are always between 5-30 years. Recently, in 2008 the United Kingdom Debt Management Office released the longest-lasting US bond to date with a 50 year maturity period which was proved popular amongst both businesses and homeowners due to its stability compared to other investments of similar lengths of time.


A bond’s coupon code is a fixed payment rate of interest from the bond issuer to the bondholder. These codes would have had varying levels of demand, depending on when and what kind of bonds were issued in the first place.

UK Government bonds example

UK Government bonds example

  • Say, for example, the bondholder decided to invest £1,000 into the following bond in the year 2020:
  • Treasury 5% 2030
  • The coupon rate is 5%, and the maturity date is 203010 years from the 2020 purchase date.
  • This means that the bondholder would receive 5% of the bond’s value, annually. In this case, £50.
  • 5% of 1000 = £50
  • If the bondholder were to hold the bond until maturity, they would receive:
  • Initial investment: £1,000
  • Coupon: £50 x 10 years = £500
  • Total: £1,500

UK Government bonds and interest rates example

If interest rates rise

The cost of borrowing has increased. The UK government is currently issuing £1bn of 10-year bonds with an 8% interest rate attached, while your company drops to a 5% interest rate on its bond, and this disparity in levels has reduced the demand for your own business’ debt, decreasing its value to £95m.

If interest rates fall

The cost of borrowing is decreasing. Recently, the UK government issued bonds with a 3% coupon and our 5% coupon is worth more than this. Most investors will rather buy a bond that has a higher rate of interest than the average interest rate at present. Therefore, the value of our bonds have risen to £105

Coupon rate

Gilts with higher coupons typically pay out more than their lower-growth counterparts. However, this can be largely influenced by the maturity of the bond, its credit rating, and other major factors – because traders will typically favor those bonds with a higher yield to them over similar but lower coupon-paying bonds.

The risk of UK government bonds

The risk of UK government bonds

Investments in the gilt market have a high risk/reward ratio. In any investment scenario, there is always a certain amount of risk associated with investing, which may or may not be worth it depending on the level of risk tolerance and other invested capital.

In any game, there are certain risks involved and excitements that come with taking risks and winning. Similarly, gilts can be traded successfully if one keeps track of their investment levels, including those they invest in gilts.

  • Interest rate risk
  • Inflation risk
  • Liquidity risk

What is the difference between gilt and debt fund?

Financial advisers have affirmed the usefulness of investing in gilt funds and corporate bond funds for those who have a longer-term investment horizon, while short-term debt funds have proven to be more beneficial for those with a one to the three-year investment horizon.

“G Sharma, councilor of GST council reports, “Even though both sections are attractive due to their presence in government Securities market coupled with instantaneous liquidity, they attract a very low-risk premium.”

Which gilt fund is best?

Which gilt fund is best?

  • Axis Gilt Fund. Consistency. …
  • DSP Government Securities Fund. …
  • IDFC GSF Investment Fund. …
  • Edelweiss Government Securities Fund. …
  • SBI Magnum Gilt Fund. …
  • PGIM India Gilt Fund. …
  • Aditya Birla Sun Life Government Securities Fund. …
  • ICICI Prudential Gilt Fund.

Top 5 Gilt Funds in India

Fund Name 3 Year Returns  
ICICI Prudential Constant Maturity Gilt Fund 8.86%  
UTI Gilt Fund 8.68%  
SBI Magnum Gilt Fund 8.17%  
ICICI Prudential Gilt Fund 7.00%  
Canara Robeco Gilt Fund 6.95%  


For those of you who are looking for amongst the safest kinds of bonds out there, Gilts are among the most stable. However, the yield on Gilts is generally pretty low – like all investments, to get potentially higher returns, a certain level of risk must be taken on.

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