Opportunity in GOI 10yrs BONDs

The articles on freefincal are definitely very informative, thanks for the links.

I will summarize my understanding, it may benefit some others also. I see broadly 3 types of Gilt mutual funds in the market:

1. Constant maturity gilt funds: These try to maintain a fixed maturity duration, typically 10 years. Hence, you are always subject to volatility due to interest rate changes. You need some expertise to navigate these.

2. Actively Managed Gilt funds: These are actively managed by the fund managers, and the maturity duration varies widely based on the calls taken by the fund managers. Here, you are trusting the expertise of the fund manager to take timely actions, and provide best returns. You still will be affected by the volatility due to interest rate changes, though it may be lower if the fund manager is any good.

3. Target maturity gilt funds: These funds have a fixed maturity date (not duration). With these, the fund value can vary in the short to medium term, but if you hold it till maturity, the returns are very predictable. In this sense, this is closest to an FD where you know the duration and return upfront, but the risk is lower since it consists of sovereign bonds. Also, if you hold for more than 3 years, effective tax is much lower too.

I personally am inclined towards gilt funds because I prefer absolute safety for my debt investments (for risk I already have equity investments!!). And within gilt funds, I prefer target maturity funds, because the other categories again carry a lot of interest rate risk.

For me, this is a more tax-efficient and safer debt investment than FDs.