Mutual funds are often the preferred option for newcomers in the field of investments. Unlike a direct investment in stocks, mutual funds carry a lower risk, while the returns are considerable. However, before investing in mutual funds, you need to pick the type of scheme you want. If you are looking to limit your risk, you should consider investing in a gilt fund.
What is gilt funds?
Gilt funds are specialized mutual funds where the money is invested exclusively in government securities and bonds. Since the volatility of such bonds is very limited, there is almost no risk involved when it comes to investment in gilt funds. However, the returns from gilt funds investments are also much lower than other mutual funds schemes.
Why should one invest in gilt funds?
Gilt funds are a great choice for investment when you want to ensure moderate returns at very low risks. Investors looking to earn a quick buck from investments can do so using these schemes, without facing the risk of financial loss. Furthermore, even though the returns from gilt funds are lower than other mutual funds investments, it is still considerably higher than the interest earned through a savings account.
Now you know what is gilt funds, you should know about the various types of gilt funds, namely long-term and short-term gilt funds. You need to determine which of the two suits your investment profile the best.
Short-term gilt funds
As the name suggests, the short-term gilt funds have a lower maturity period, generally lesser than 5 years. These schemes have limited returns and even lower risk. You should consider investing in short-term gilt funds, if you simply want to keep your money safe, without earning too much on the invested sum.
Long-term gilt funds
The more volatile gilt funds are the long-term investment schemes. These funds allow you to invest across schemes with maturity periods ranging from 5 years to 30 years. Due to the higher rate of returns on these long-term gilt funds, they are more popular among institutional investors. Furthermore, the limited option when it comes to short-term gilt funds, also makes long-term gilt funds the better choice among the two.
Now that you know everything about gilt funds investment, you need to understand when you should invest in gilt funds. Gilt funds payout will depend greatly on the timing of your investment. For the best returns, check the interest rate. Invest as soon as you detect a drop in the rate of interest in the near future.
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