Best gilt mutual funds to invest in May 2025

Time of India

23-05-2025

Mutual fund advisors are recommending gilt funds to 'aggressive' or 'sophisticated' debt investors as they believe that gilt funds are likely to offer superior returns when the RBI may start cutting interest rates. They say gilt funds have the potential to offer double-digit returns in a falling interest rate scenario.
If you want to benefit from a likely fall in interest rates, you may take a close look at gilt
mutual funds
. However, be forewarned: gilt funds are risky and they are extremely sensitive to changes or likely changes in the interest rate scenario. That is why these schemes are recommended to only informed investors who are ready to take risk and have a long investment horizon.
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Gilt funds are not recommended to regular debt investors because they are risky and volatile. Gilt funds suffer the most when the rates go up. The bond prices and yields move in opposite directions. When the rates go up, bond prices come down. This drags down the NAVs of schemes.
What are gilt mutual funds?
Gilt funds are debt mutual funds that invest in government-securities or G-secs. As per Sebi norms, these schemes must invest 80% of their corpus in
government securities
. As you see, these schemes invest in government papers or they lend to the government. Therefore, they don't have any credit risk or they face zero defaults. However, they are extremely sensitive to interest rate changes.
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These factors make investing in gilt funds extremely tricky. You should be well-informed about interest rate changes in the economy. For example, interest rates are supposed to go up in a few months. And interest rate cycles usually last for a few years. As said earlier, this will have an adverse impact on gilt schemes.
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Does that mean you should not invest in these schemes? Not really. But you should invest only if you have the time to wait for the interest rate cycle to turn around. This will help investors to benefit from soft interest rates. These schemes have the potential to offer double-digit returns when rates start falling or in anticipation of interest rate falls.
Here are our recommended gilt schemes.
Nippon India Gilt Securities Fund
has been in the third quartile for the last nine months. The scheme had been in the fourth quartile earlier.
Aditya Birla Sun Life Government Securities Fund
has been in the third quartile for the last 13 months. Bandhan Government Securities Fund has been in the third quartile in the last three months. The scheme had been in the second quartile earlier. Please follow our monthly updates to keep track of your investments.
Best gilt funds to invest in May 2025:
Nippon India Gilt Securities Fund
Bandhan G-Sec Fund
SBI Magnum Gilt Fund
ICICI Prudential Gilt Fund
Aditya Birla Sun Life Government Securities Fund
Methodology:
ETMutualFunds.com
has employed the following parameters for shortlisting the debt mutual fund schemes.
1. Mean rolling returns:
Rolled daily for the last three years.
2. Consistency in the last three years:
Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i)When H = 0.5, the series of returns is said to be a geometric Brownian time series. This type of time series is difficult to forecast.
ii)When H <0.5, the series is said to be mean reverting.
iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk:
We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance:
Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.
Asset size:
For debt funds, the threshold asset size is Rs 50 crore