What Is a Gilt Fund?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 06 November 2018
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A gilt fund is a type of mutual fund that focuses on investing in a variety of assets that are all considered to carry a relative low rate of volatility. This approach is different from bond funds and other types of investment funds, since the focus is on providing a reasonable return without requiring that investors take on a great deal of risk. The concept of the gilt fund is generally thought to have originated in Great Britain and is now widely available in a number of nations, including India and many of the countries that were formally considered colonies of the United Kingdom.

In many instances, the assets that are invested as part of the gilt fund are securities that are issued by a government. This is because issues of this type tend to be very safe and offer returns that are considered predictable, even when allowing for shifts in the economy. Within the context of securing government securities as investments, the administrator of the gilt fund may choose to balance the assets by combining a mixture of both short- and long-term securities.


While a gilt fund is sometimes thought of as being free of any risk, this is not strictly the case. Many of these types of funds are structured to include investments that carry a variable or floating rate of interest. This means that if the average interest rate should fall, the amount of returns generated for the fund may be less than anticipated. From this perspective, the investor in a gilt fund does carry the risk of possibly making less from the investment than originally projected. Depending on how severe the shift in interest rates happen to be, this could mean the investor would do better to withdraw and invest in a different type of mutual fund.

One strong benefit of a gilt fund that does limit volatility is that the investments acquired for the fund tend to be covered with some type of investment insurance. What this means is that even if circumstances occur that preclude the delivery of any type of return from the fund, investors are highly likely to at least recoup the original contribution. Since trade laws and regulations vary from one nation to the next, it is important to review the terms and conditions associated with a particular gilt fund and find out exactly what type of protections are in place before choosing to participate in the fund.



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