If you are looking for a low-risk investment option backed by government securities, a Gilt ETF can be a smart choice. It combines the safety of government bonds with the convenience of stock market trading.

But what exactly is a gilt ETF, and how does it work?

Let’s understand in detail.

What is a Gilt ETF?

A Gilt ETF (Government Securities ETF) is an exchange-traded fund that invests primarily in government bonds and treasury bills issued by the Government of India.

“Gilt” refers to high-quality debt instruments backed by the sovereign government, meaning they carry minimal default risk.

Gilt ETFs are listed on stock exchanges and can be bought and sold like shares through a demat account.

How Does a Gilt ETF Work?

A gilt ETF works in the following way:

1. The fund invests in government securities (G-Secs) of specific maturity.
2. It tracks a government bond index (e.g., 10-year G-Sec index).
3. The ETF price moves based on bond yields and interest rates.
4. Investors can trade ETF units on NSE or BSE.
5. Returns come from interest income and bond price movement.

When interest rates fall → bond prices rise → gilt ETF price increases.
When interest rates rise → bond prices fall → gilt ETF price declines.

Types of Gilt ETFs

• 10-Year G-Sec ETF

• Long Duration Government Bond ETF
• Target Maturity Gilt ETF
• Bharat Bond ETF (target maturity structure)

Each type varies based on maturity profile and interest rate sensitivity.

Who Should Invest in Gilt ETF?

Gilt ETFs may suit investors who:

• Want low credit risk investments
• Prefer government-backed securities
• Want to diversify equity-heavy portfolios
• Are planning medium to long-term investment
• Want exposure to bond market without directly buying G-Secs

Gilt ETF vs Debt Mutual Fund

Feature	Gilt ETF	Debt Mutual Fund
Credit Risk	Very Low	Depends on portfolio
Trading	On exchange	Through AMC
Expense Ratio	Lower	Higher
Transparency	High	Moderate
Liquidity	Market based	Redemption based

How to Invest in Gilt ETF?

1. Open a demat & trading account with JM Financial Services.

2. Search for listed gilt ETF on NSE/BSE.
3. Buy units during market hours.
4. Hold for interest accrual and capital appreciation.

Minimum investment = price of 1 ETF unit.

Strengths of Gilt ETF

• Sovereign-backed securities
• Low credit risk
• Transparent portfolio
• Lower expense ratio
• Easy liquidity on exchange
• Suitable for portfolio diversification
• Ideal during economic uncertainty
• Predictable interest income component
• Good for conservative investors
• No default risk

Risks of Gilt ETF

• Interest rate risk
• Bond price volatility
• Duration risk
• Inflation risk
• Liquidity fluctuation risk
• Market timing risk
• Returns lower than equities long term
• Capital loss if sold during rate hike cycle
• Sensitive to RBI policy changes

Taxation of Gilt ETF

Gilt ETFs are taxed similar to debt mutual funds (as per prevailing tax rules):

• Short-term capital gains: As per income slab
• Long-term capital gains: As per applicable debt fund taxation norms

Always check latest tax provisions before investing.

FAQs

1️. Is Gilt ETF safe?

Gilt ETFs invest in government securities, so credit risk is extremely low. However, they carry interest rate risk.

2️. Can gilt ETF give negative returns?

Yes. If interest rates rise sharply, bond prices fall, which may cause temporary negative returns.

3️. Is gilt ETF better than fixed deposit?

Gilt ETFs offer market-linked returns and liquidity, while FDs offer fixed interest. Risk and return profile differs.

4️. What is the difference between gilt fund and gilt ETF?

A gilt fund is a mutual fund managed actively, while a gilt ETF tracks an index and trades on stock exchanges.

5️. Who should avoid gilt ETF?

Investors seeking high returns or short-term capital appreciation may find gilt ETFs unsuitable.

6️. Is gilt ETF good during falling interest rates?

Yes. Gilt ETFs tend to perform well when interest rates decline.