Here is a collection of must-see videos that will help you understand the world of mutual funds. Happy Investing!

Financial discipline is similar to going on a diet. It is never easy. There are plenty of temptations - an urge to over spend, letting emotions control your investments and confusion due to the problem of plenty - look at the plethora of options available in the market, with the returns of one scheme trying to beat the other. Who does one turn to for advice? Dependency on one person or your financial advisor alone is also tricky. Which is why people often turn to mutual funds.

The argument here is that experts are taking care of your investments. Depending on your investment appetite and risk appetite, mutual funds come with a good mix of both equity and debt, which helps you earn an interest of 12-15% or more depending on the type of investment schteme you have picked and how the markets have performed overall. Yet, selecting a mutual fund can be confounding due to the raft of choices available.

Episode 33 I Expert

Gilt Funds

Are you a risk-averse investor? Consider gilt funds

Gilt funds typically invest in different types of medium and long-term government securities. The scheme generally keeps focussing on investing capital in high-quality corporate debt instruments which are graded AAA, are high in quality and have low-risk debt such as government securities. And for these reasons they make an ideal investment option for investors who are risk averse. It helps such investors protect their capital from risk and gain decent returns. Gilt funds offer comparatively better asset quality though the returns may be lower than other asset classes.

Market experts do see an inverse relationship between bond prices and interest rates. Having said that, gilt funds are highly dependent on the change in interest rates. When the interest rates fall, the prices of government securities go up, thereby benefitting the returns and vice versa. When other asset classes like equity and debt don’t perform, gilt funds offer good returns.

Gilt funds are debt-oriented funds, so a security transaction tax won’t apply. But like any other capital investment held for less than a year, they will attract short-term capital gains tax and if held for more than a year will attract long-term capital gains tax.

Like any other investment, gilt funds have advantages and disadvantages. The advantage is it has no credit risk, there is ease of investment in government securities, your capital is well protected and helps provide moderate returns in the short- to medium-term time horizon. Gilt funds do offer retail investors an opportunity to buy in government securities.

However, there are certain disadvantages. When the interest rates increase, the fund manager may not be able to divest the investment during an emergency due to its illiquid nature thereby not allowing you to enjoy the desired returns. But again the purpose of picking these funds is to gain good returns without taking too much risk.

So if you are an investor who seeks good returns with low risk, gilt funds may just be the answer. Remember, before investing, it is important that you assess your risk-taking capacity, financial goals and the fund’s track record.