What is a gilt fund?

Please answer the following queries for me.

1. What is a gilt fund?
2. How much time should one hold the fund for tax benefits?
3. How much time should the fund be kept invested for good return?
4. Please recommend three good debt funds.

- B C Tripathy

1. A gilt fund invests only in government securities. Since gilt funds invest only in government bonds with sovereign guarantee, they don't have any credit risk. Gilt funds come with different maturities: short term, medium term or long term. Like all bond funds, these funds too have interest rate risk.
2. You have to hold a debt fund for three years to get the best post-tax returns. If investments in debt are sold after three years, you will qualify for long-term capital gains tax of 20 per cent with indexation benefit. If investments are sold before three years, gains are treated as short-term capital gains and taxed at income tax slab applicable to the investor.
3. How much time should you hold on to your investments will depend on the kind of scheme you are investing. For example, liquid funds are ideal to park money for a few days to weeks. Ultra short-term funds are good to park money for a few months to a year. Dynamic bond funds are ideal for investors with a long term investment horizon.
4. Since you haven't given your investment horizon, it will not possible to recommend good schemes for you.

This article was originally published on January 19, 2016.