These funds invest in Government bonds of medium to long durations. Though gilts do not have any exposure to credit risk, but the exposure of Gilt funds to interest rate risk is the highest among all debt fund categories. Higher the average duration of the gilt fund portfolio, higher is the interest rate risk. Gilt funds gave high returns in 2014, helped by the softening of government bond yields. These funds are suitable for investors who are ready to take interest risk, by timing their entry and exit from these funds. The chart below shows the annual returns of gilt funds from 2012 to 2014.
