Gilt funds, which primarily invest in government securities (G-secs) and securities issued by state governments, have given double-digit returns over the past one year. Returns from gilt funds have risen as the Reserve Bank of India (RBI) has been cutting policy rates, leading to reduction in yields on G-secs. As G-sec yields fall, their prices go up. In its monetary policy last week, the central bank once again cut repo and reverse repo rates by 40 basis points (bps) each, which would impact gilt fund positively.
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