Top 5 Mutual Funds that Invest in Government Bonds

Those who wish to diversify their portfolio with fixed-income assets or build an emergency fund might consider beginning a systematic investment plan (SIP) in debt funds such as Gilt Mutual Funds. Gilt funds are debt mutual funds that invest in government-securities or G-secs. As per Sebi norms, these schemes must invest 80% of their corpus in government securities. As you see, these schemes invest in government papers or they lend to the government. Therefore, they don’t have any credit risk or they face zero defaults. However, they are extremely sensitive to interest rate changes.

Why to Choose Gilt Funds?

Investing in Gilt funds have some major advantages which needs to be considered before investing your money.

1. No credit risk: Since these funds invest in securities that are of high credit quality, there is more or less a guarantee of protection. The risk levels associated with these are on the lower side. These funds are suitable for risk-averse investors.
2. Easy access to government investments: Investing in government securities is beyond reach for retail investors. They need large sums of money. Gilt funds allow retail investors to invest in such securities.
3. Moderate returns: Gilt funds give moderate risk-free returns in medium to long term. It gives investors a pretty good bargain by balancing risk and return.  The returns provided by gilt funds are stabler and more predictable than other debt funds.

Risk associated with Gilt Funds

Gilt funds have their own set of risks as well.

1. Increasing interest rate regime: Under an increasing interest rate regime, the returns from gilt funds fall. The inverse relationship between bond prices and interest rates affects the returns of gilt funds.
2. Low on liquidity: They invest in government securities, though they are safe investment options, they are not as liquid as the other securities in the market. It will be difficult for funds managers to switch between government securities.

Best Gilt funds are a class of debt mutual funds that invest majorly in the fixed-income securities issued by the state and governments in India.

IDFC Government Securities Funds

It is an open-ended Gilt mutual fund scheme from IDFC Mutual Fund. It has Rs 1,449 Crores assets under management as on 28 February 2022 and recently declared NAV is Rs 30.472 as of 16th March 2022. Its expense ratio is 0.62%. The fund is low top moderate risky when comes to investing. However, it has delivered good returns, better than its peer funds. Rating agency CRISIL has rated this fund with 4 stars.

Edelweiss Government Securities Fund

It is also an open-ended Gilt mutual fund scheme from Edelweiss Mutual Fund. It has Rs 113.14 Crores assets under management, and the recently declared NAV is Rs 20.664 as of 16th March 2022. Its expense ratio is 0.69%. When it comes to investing, the fund is low to moderately risky. However, it also outperformed its peer funds in terms of returns. The fund has 46.81% investment in Debt of which 46.81% is in Government securities. Rating agency CRISIL has rated this fund with 5 stars.

DSP Government Securities Fund 

It is also an open-ended Gilt mutual fund scheme. It has Rs 416.71 Crores assets under management, and the recently declared NAV is Rs 79.662 as of 16th March 2022. Its expense ratio is 0.54%. When it comes to investing, the fund is low to moderately risky. However, it also outperformed its peers’ funds in terms of returns. The fund has 67.85% investment in Debt of which 67.85% is in Government securities.

Aditya Birla Sun Life Government Securities Fund

It’s a 9-year-old open-ended Gilt mutual fund scheme from Aditya Birla Sun Life Mutual Fund launched on 01 January 2013. It has Rs 1,103.95 Crores assets under management as on 28 February 2022 and recently declared NAV is Rs 69.4846 as of 16th March 2022. Its expense ratio is 0.29%, almost half of the category average expense ratio. The fund possesses moderate risk, investment in this fund is risky. However, it has delivered good returns, better than its peer funds. The fund has 97.41% investment in Debt of which 97.43% is in Government securities. Rating agency CRISIL has rated this fund with 3 stars.

Kotak Gilt – Investment 

It is an open-ended gilt mutual fund launched by the Kotak Mahindra Mutual Funds on 01 January 2013. Its AUM is worth Rs 1,84.68 Crore. While the NAV is Rs 85.6019 as on 16th March 2022. Its expense ratio is 0.4%, close to its category average expense ratio. It has given good returns over the year since its inception, better than the category average. However, the is risky to invest in and poses the risk of capital loss. Fund has 92.28% investment in Debt of which 92.28% is in Government securities.