Gilt fund | Short-term safest investment option

 

Since the beginning of 2020, the capital market has faced both a historic decline and rapid improvement in the environment of the coronavirus epidemic. Due to this, investors are also not able to trust much to put money. In a volatile environment, gilt funds can be the safest investment option for short-term, as it invests money in government securities, providing both confidence and large returns. The RBI takes money from banks and insurance companies to provide capital to the central or state government and issues securities in return. Gilt funds subscribe to these securities, which are for a fixed period.

 

Gilt funds are linked to government securities, in which 80% of the investment is necessary. Hence, the probability of default is zero and the credit quality remains high. As per the scheme, investors can invest in maturities of 5 to 30 years in the long term in addition to the short term. In 2019, gilt funds have given over 15 per cent returns. However, in terms of security, the risk of investment in the long term is high because there is a high probability of fluctuating interest rates in the long term. However, many gilt funds provide better returns over the long term.

 

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 rates are at a 20-year low. Hence, one can earn big profits by investing short-term in the gilt fund right now. 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. Investments in gilt funds also have to pay management fees like other funds, which SEBI has set 2.25% of total management assets. No fund manager can charge more than this. Therefore, while investing money in the fund, one must also calculate its 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. However, investors are also given other benefits including indexation.

 

Those investing in gilt funds have to closely monitor interest rates. You should know when to exit the plan and when to invest. Interest rates in the market are determined by government securities and corporate bonds, so interest has a significant impact on returns. Before investing money in such a fund, one should get a thorough knowledge of the risks and returns from his fund manager.