These schemes invest in 10-year constant maturity government securities. Because of a longer duration in their portfolio, these schemes are highly susceptible
to interest rate change. These schemes will yield higher returns when the rates go down. A valid fund with a constant maturity of 10 years will invest 80% of
its total assets in securities of government. Gilt funds with an average 10-year maturity are typically very sensitive to changes in interest rates.
When you think you keep these funds, and interest rates start to rise, then there are significant chances that these funds will be able to give you negative returns.
Gilt debt funds aim to provide protection and returns with the dual value. Your investments are in government bonds, so there's a very small risk to the amount
invested. In comparison, relative to the savings bank account, it also provides better returns. Although more mature funds may be risky at times, as they are more
prone to interest rate risk, but are not affected by credit risk. Investors who can tolerate low investment risk can therefore plan to invest in Gold Funds with a
constant maturity of 10 years.
Gilt Fund with 10 year constant duration :
Most of these mutual funds invest in government bonds. We try to keep the portfolio so that the remaining average maturity (Macaulay duration) is 10 years.
Government bonds are known to be the country's safest investment.