Government Bond Mutual Funds

If you are seeking a safe investment that will help you grow your money, then government bond mutual funds would be a good investment option for you. This is because government bond mutual funds primarily focus on government securities, making them among the safest choices when it comes to debt investments. They are ideal for investors looking to get higher returns than a savings account.

What are Government Bond Mutual Funds ?

Government Bond Mutual Fund is a debt mutual fund which invests mostly in bonds and securities of the central government and state governments. Since the bonds and securities are guaranteed by the government, the possibility of default is very low.

The fund manager manages the portfolio by purchasing and selling government bonds depending on changes in the interest rates and market situation.

Features of Government Bond Mutual Funds

• Invest in Government Securities: These funds make investments in government bonds, treasury bills, and other securities issued by the sovereign.
• Minimal Credit Risk: The risk of default is very low when compared to corporate bonds because the investments are guaranteed by the government.
• Higher Liquidity: You can redeem your investment on any business day, making these funds more flexible than fixed deposits with lock-in periods.
• Portfolio Diversification: Government Bond Mutual Funds can balance your overall investment portfolio by reducing exposure to high-risk assets.

How to Invest in Government Bond Mutual Funds?

You can invest in government bond mutual funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose a suitable government bond mutual fund.

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Why to Invest in Government Bond Mutual Funds?

• Stable Investment Instrument: Government securities are regarded as one of the most secure forms of investment due to their backing by the government.
• Increased Returns: Such funds might provide greater returns compared to conventional savings deposits, particularly in the medium to long run.
• Professional Management: You don't have to monitor bond markets yourself. Professional fund managers make investment decisions on your behalf.
• Liquidity: Unlike some traditional investment products, you can redeem your units whenever you need funds, subject to applicable terms.

Taxation of Government Bond Mutual Funds

• Taxation of Fresh Investments (Onwards from April 1, 2023): The entire capital gain by selling government bond funds, irrespective of the holding period, would be short-term capital gain. This gain would be fully added to the individual's income and would be liable to Income Tax at the appropriate slab rate. There is no option for indexation.
• Taxation on Legacy Investments (Pre-April 1, 2023): For the investment units which are held up to 24 months, taxes will be levied as per the individual’s income tax slab. But for the legacy units which have been held more than 24 months by an individual, such gains will be treated as LTCG and taxed at the fixed rate of 12.5%.