information about guilt fund and its understanding.

2.  Debt funds arefunds that invest in long, medium or
short-term income bearing instruments like corporate
bonds, debentures, fixed deposits, treasury bills,
commercial papers, etc.
 These arethe in fixed income instruments preferred by
investors who want steady income and not willing to take
much of risk.

3.  Debt funds guarantee a constant flow of returns and are
less volatile than other equity funds that also form part of
mutual funds investment.
 Debt securities are generally less risky than equities, they
are subject to credit risk (risk of default) by the issuer at
the time of interest or principal payment.
 Debt funds are also highly liquid as they can be converted
to cash easily and are useful in creating a well balanced
portfolio.

4.  These are mutual fund schemes.
 Invest in medium and long term government
securities and money market instrument.
 Originated in Britain
 Stick to high quality low risk debt.
 First Gilt fund – December 1998
 Issued by RBI on behalf of Government.

5.  Gilt funds originate
from the requirement of investors to
ensure higher safety levels for their invested money.
 Giltfunds generally provides marginally high returns than a
money market fund , and are the good options to the
investors who seek protection of principal.
 Giltfunds can be volatile due to increase or decrease in
interest rates. There could be a possibility that the debt
funds lose some part of their net asset value (NAV) also
with high interest risk . But these schemes are safer as they
invest in papers backed by government.

6.  These areideal for those who want more safety for their
investments or are risk-averse and, at the same time, are
looking for reasonable returns on their money.
 According to mutual fund rating agency, Value Research,
medium and long-term gilt funds gave returns of 3.84 per
cent for the year . In the short-term (less than a year), they
have returned 4.18 per cent.

7.  These area good option when inflation is near its peak
and the RBI is not likely to raise interest rates
immediately.
 A slowdown in GDP growth, rising inflation, a decline in
IIP (Index of Industrial Production) and expectations of a
fall in corporate earnings.
 Broadly speaking,a situation when interest rates have
peaked and a downturn seems imminent, would be an
opportunity time to invest in gilt funds.

8.  There are three types of risks involved in any debt
instrument:-
1)Credit Risk
2)Liquidity Risk
3)Interest Rate Risk
 As gilt funds invest only in government bonds Credit
Risk in a government security is near to zero, but not zero.
G sec are considered to be the safest in the debt markets.

9.  Gilts are highly liquid in nature and Gilt funds, being the
mutual fund are liquid.
 The biggest risk involved in Gilt funds is Interest Rate Risk .
Here “Price of the bond and interest rates are inversely
related’. When interest rate rises, bond prices fall or vica
versa. Bonds prices and gilt prices tend to fall in rising
interest rate scenario.

10. 1. Less credit risk: As they are backed by government there
is almost no credit risk.
2. Open to retail investors: Only institutional investors
can invest in G- sec market but Gilt funds provide retail
investors a low-cost way to invest in G-sec, which
otherwise was open only to large players.
3. Diversification: Investment in Gilt funds provides for
effective diversification.

11. 1.Interest rate risk: If the interest rate increases the price of
G-sec fall which is a big risk to the investor.
2.Not Liquid: Underlying securities are illiquid as they are
not frequently traded. So if the fund manager opts for
distress sell, to relieve redemption pressure, the fund
may suffer loss.
3. Mostly ideal for short term investment: Makes ideal
short-term investment as most of the funds tend to be
volatile over longer investment time frame and equity
scores over gilt in the long term.

12. BEST GILT FUNDS IN INDIA
Scheme Name Last 1 Year Return Last 3 Years Return
Baroda Pioneer Gilt Fund (Growth) 7.83% 7.75%
HSBC Gilt Fund (Growth) 7.58% 2.38%
L&T Gilt Investment (Growth) 7.04% 3.04%
UTI Gilt Advantage Fund-LT (Growth) 6.84% 9.17%
Birla Sunlife GPLP (Growth) 6.20% 5.01%
Sahara Gilt Fund (Growth) 5.93% 8.77%
DSP BlackRock Treasury Bill Fund 5.84% 4.46%
(Growth)
SBI Magnum Gilt STP (Growth) 5.62% 6.42%
LIC Nomura G Sec Fund (Growth) 5.42% 5.07%
ICICI Prudential GFIP (Growth) 5.40% 11.83%
IDFC G sec Fund Plan A (Growth) 5.37% 7.81%

13.  Investing in gilt funds though offer safe investment option
but timing to buy any debt fund is equally important.
 Make sure that don’t get into any debt instrument like gilt
funds when are the interest rates have formed a base.
 It is better to have only a small portion of your portfolio in
gilt funds. At the same time you must also consider your
capacity to take risk, goals and fund's track record you are
investing in.