The 20th century has seen a rise in numerous investment options, among these the gilt mutual funds (MFs) have emerged as one of the most reliable investment plans. Gilt funds primarily invest in government securities, which are issued by the Reserve Bank of India (RBI). These funds offer several benefits such as safety, reasonable returns, and even tax efficiency. With that, now let’s understand how these funds work and what made them so popular in the investment industry.
What are Gilt Mutual Funds
These funds are issued on behalf of the central banks and are debt MFs. They are invested 80% in G-Sec bonds or government securities. Since these funds are backed by the sovereign, they bring very little risk, which makes it the best alternative for risk-averse investors-who are basically 80% of the investors in the market. With the Reserve Bank of India’s accommodative monetary policy stance, along with fiscal discipline and high demand for low-risk debt instruments, gilt MFs have gained significant popularity in recent years.
Why Gilt MFs in the year 2025?
- Drop-in Interest Rates: As the interest rates have fallen in the year 2025, the prices of the bonds have increased, and anticipations for a further drop in the interest rates is making gilt funds more attractive.
- Safety: Recent times have witnessed several geopolitical tensions, making investors shift from credit-risky investments to safer options such as gilt MFs.
- Long Term Benefits: As most of the gilt funds are invested in bonds with a maturity between 10 to 30 years, this makes them more sensitive to rate changes, benefiting when interest rates dip which would result in an increase on its NAV.
- Stability: Being a sovereign bond and with Indian government’s current fiscal discipline, makes gilt MFs more lucrative for conservative investors.
Top Performing Gilt Mutual Funds in 2025
1. SBI Magnum Gilt Fund – Direct Plan – Growth
- 1-Year Return (2025 YTD): 12.4%
- Assets Under Management (AUM): ₹3,400 Crores
- Expense Ratio: 0.35%
- Fund Strategy: Focus on long-duration G-Secs (10+ years)
- Why It’s Performing: Benefiting from falling yields and a higher allocation to 2045–2050 bonds.
2. ICICI Prudential Gilt Fund – Direct Plan – Growth
- 1-Year Return (2025 YTD): 11.9%
- AUM: ₹2,900 Crores
- Expense Ratio: 0.34%
- Fund Strategy: Dynamic duration management with a mix of 5–15 year securities.
- Why It’s Performing: Active duration calls in a falling interest rate environment have worked in the fund’s favor.
3. HDFC Gilt Fund – Direct Plan – Growth
- 1-Year Return (2025 YTD): 11.3%
- AUM: ₹2,200 Crores
- Expense Ratio: 0.30%
- Fund Strategy: Barbell approach—mix of short-term and long-term G-Secs.
- Why It’s Performing: Smart mix of safety and duration benefit amid volatile bond markets.
4. Nippon India Gilt Securities Fund – Direct Plan – Growth
- 1-Year Return (2025 YTD): 10.8%
- AUM: ₹1,800 Crores
- Expense Ratio: 0.32%
- Fund Strategy: Investment in medium- to long-term securities.
- Why It’s Performing: Stable performance and lower volatility with strategic maturity allocation.
5. Aditya Birla Sun Life Government Securities Fund – Direct Plan – Growth
- 1-Year Return (2025 YTD): 10.6%
- AUM: ₹1,500 Crores
- Expense Ratio: 0.36%
- Fund Strategy: Diversified government security investments across maturities.
- Why It’s Performing: Robust active management and low tracking error.
Also read: Loan Against Mutual Funds: Should You Choose Equity or Debt Funds?
Does Gilt MFs fit in your Portfolio?
Gilt MFs are mostly ideal for all types of investors especially for
- Conservative Investors: The risk averse investors who are looking for capital preservation, by avoiding credit risk and going for sovereign back bonds.
- Longer time Horizon: Those investors having a time horizon of more than 3 years, and can handle mild level of interest rate fluctuations.
- Tax Conscious Investors: Investors looking for tax efficiencies such as indexation benefits.
Taxation on Gilt Mutual Funds
- Short-Term: If the funds are held for less than 3 years, the taxation will be according to the tax slab.
- Long-Term: If held for more than 3 years, the tax levied would be 20% along with indexation benefits.
Points to Remember, Before Investing
While Gilt funds offer several benefits, it is also important to keep in mind that they come with interest rate risk too, that means a rise in the interest rates can cause the bond’s value to drop, therefore it is important to keep the following points in mind –
- Consider interest rate outlook for the coming financial years.
- Duration risk is higher in long term gilt mutual funds.
- Not ideal for short term, especially when market is at its downturn or rising interest rate cycle.
Bottom Line
Top performing gilt MFs have offered attractive returns especially due to the recent changes in interest rate and RBI policies along with the current macroeconomic situation. While they offer predictable returns it is important to make sure you have a time horizon of 10+ years and are well aware of interest rate risks. Apart from that any investor looking for diversification or tax benefits, gilt funds can be the best investment option for you in 2025.
Written by Adithya Menon
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