Best Gilt Mutual Funds

Gilt funds come under the category of mutual funds that invest in government securities and fall under a broader category of debt funds.

In order to comprehend gilt funds, the government securities need to be understood. Government security means a debt instrument issued by the central government or state government to generate funds for public expenses. 

They are issued through the Reserve Bank of India and are referred to as gilt. Here is a detailed list of the best gilt funds in 2025.

The individuals who are most suited to invest in gilt funds are:

1. Investors Who Seek Exposure to Debt Investments

These funds assist an investor to be part of debt investments in mutual funds. Since they only invest in government securities, it makes them a reliable source of investment. 

2. Investors with Zero Risk Tolerance

Given that gilt bonds hold government securities as their only underlying asset, it does not come with market risks. It can be an alternative to term deposits because it holds zero risks for the investor. 

3. Investors About to Retire

Investors who are about to retire usually look out for options to start investing in risk-free and reliable options. Moreover, they cannot take market-related credit risk and the strain of managing funds. Therefore, gilt funds can be a reliable option with reasonable returns and under the expertise of a fund manager.

4. Investors Who Want to Balance their Portfolio

Investors who look forward to balancing their portfolios with stable and risky funds can add gilt funds to their portfolio, given that it does not carry risks.

The major attributes to be considered before investing in gilt funds are:

1. Costs: The operational expenses of a specific fund may be determined by the fund manager's investing strategy. This applies even in the case of gilt funds; therefore, before you can choose a fund, you need to be aware of the expense ratio. 
2. Returns: This fund carries no credit risk, given that the underlying assets are government securities. However, they do carry some amount of interest rate risk based on economic conditions. 
3. Investment Horizon: These funds have medium to long-term maturity periods, and the average period to stay invested in this fund is three years. If you wish to invest in it, you must have an investment horizon ranging from at least 3 to 5 years.
4. Taxes: Your capital gains earned from gilt funds will be taxed; although the percent will be based on your holding period, you will have to be aware of the rates.

Here are some major advantages of investing in the top gilt mutual funds –

Low credit risk: Since gilt funds invest in government bonds and securities, they carry minimal credit risks, unlike mutual funds that invest in corporate bonds. 

Capital protection: Chances of capital loss with the best gilt funds is minimal as they invest significantly in government-backed securities.

Reasonable returns: Gilt funds offer significant returns over a mid to long period. 

Flexible investment modes: One can invest in gilt funds in one of two ways – SIP and lump sum. A Systematic Investment Plan is where investors deposit a fixed sum periodically. This sum can be as low as Rs.100. The lump-sum mode requires one to deposit their investment only once.

Here are the core risks that may be associated with best performing gilt funds-

1. Interest Rate Risk

Bond prices always have an inverse correlation with the interest rate movement. This states that if the interest rate increases, then the price of the bond decreases, and vice-versa. The sensitivity of the price of the debt instruments to fluctuation is known as interest rate risk.

2. Duration Risk

Longest-duration gilt funds have the highest duration risks because the maturities of gilt funds range from 90 days to more than 30 years. Longer-term gilt funds carry higher duration risks, although if the intention is to hold the bond to maturity, this risk is often mitigated.