Gilt Funds

Gilt Funds

Subject: Economy

Context: The RBI has allowed direct access to its platform to retail investors for deepening the government securities (G-sec) market and to help smooth sailing of the government’s large yearly borrowing program of around Rs 12 lakh crore

Concept:

• Gilt fund is debt fund or pooled investment vehiclesthat invest in government securities.
• Earlier the government bonds used to be issued in golden-edged certificates, thus the nickname gilt comes from gilded edge certificates.
• There are two kinds of gilt funds.
• One, gilt funds that invest mostly in government securities across maturities. Two, gilt funds with constant maturity of 10 years – these funds must invest at least 80% of their assets in government securities with a maturity of 10 years.
• As per Sebi norms, gilt funds have the mandate to invest at least 80% of their assets in government securities.
• These are zero default risk. However, they have very high interest rate risk.