Mutual Funds Day 30: Gilt Funds
There are a few more Debt funds that we did not discuss explicitly, they are
- Credit Risk Funds
- Banking & PSU Funds
- Dynamic Bonds
- Floater Funds
The concept is similar for all of these, they invest in Bonds of Corporations, Banks, or PSU companies.
Then there are Gilt funds, these require special mention as they invest up to 80% in Government Securities only. These funds are compelled to buy Government of India Bonds, both short term and long term.
When a Gilt fund invests in a 10+ year maturity GOI Bond, it will be called a 10-year constant maturity gilt fund.
The bonds issued by RBI — Gsecs (Government securities) are the safest financial instruments in our country. The sole reason is the “sovereign guarantee”.
The interesting thing about debt funds is their sensitivity to interest rates. Bond prices tend to fall when the interest rate is on an increasing regime. Similarly, the bond prices tend to go up on a decreasing rate regime. This is where the tenure is so important. If you withdraw funds before the tenure, there could even be a capital loss.
Examples
https://viswaram.com/mutual-funds-day-31-conservative-hybrid-funds-73cee2b4382e
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