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Market Intelligence › Basic Terminologies
Credit risk almost zero, duration risk in full
Published by The Retail Trader · JUL 29, 2026 · Mutual Funds & AMC
A gilt fund invests only in government securities. That means credit risk almost disappears, and this is exactly why people assume it is safe.
The government does not default, so there is no credit risk to worry about. But gilt funds often carry long duration, and the duration risk remains in full.
So in a period of rising rates the NAV of a gilt fund can fall quite a lot, even though every paper in it is safe.
A gilt fund is a product for a specific view:
• It does well when rates are expected to fall.
• Its horizon should be long, because over a short horizon it can fall at the wrong time.
• It is not at all suitable for an emergency fund.
• Its return is not stable, even though its credit quality is the highest.
"Government backed" means there will be no default. It does not mean the value will not fall. These are two completely different things, and mixing them up is the most common mistake in debt investing.
This article is for educational purposes only. It is not a buy or sell recommendation, not a claim of guaranteed returns, and not advice. Rules, rates and mechanics change from time to time at the exchanges, SEBI and the RBI, so verify every number yourself with your broker or an official source.