A Gilt Fund with 10-Year Constant Duration is a debt mutual fund that invests predominantly in long-term government securities, while maintaining an average portfolio duration of around 10 years. Backed by sovereign issuers, these funds carry negligible credit risk and are designed to deliver stable returns over the long term, especially during favourable interest rate cycles.

The fund continuously rebalances its holdings to keep the portfolio’s interest rate sensitivity aligned with a 10-year maturity profile. Returns are driven by regular interest income and potential capital appreciation when bond prices rise due to falling interest rates.

1. Invests mainly in central and state government bonds
2. Maintains a steady 10-year duration exposure
3. Zero default risk due to government backing
4. Higher sensitivity to interest rate movements
5. Suitable for long-term fixed-income strategies

This fund category is ideal for investors who prioritise capital safety and want to benefit from long-term interest rate movements. It works particularly well when interest rates are expected to soften, offering better return potential than short-duration debt funds.

Best suited for conservative to moderate investors with a long-term horizon who seek stable, government-backed returns while accepting interest rate risk.

1. Strong capital protection with sovereign backing
2. Attractive returns during falling interest rate cycles
3. Predictable duration makes long-term planning easier
4. Effective diversification for balanced portfolios
5. More transparent and regulated compared to many fixed-income options

Despite low credit risk, these funds can experience short-term volatility due to interest rate changes. They may not suit investors with short-term goals or low tolerance for NAV fluctuations.

Gilt funds with 10-year constant duration are taxed as debt mutual funds. Capital gains are added to the investor’s income and taxed as per the applicable income tax slab. Dividend income, if any, is also taxed at slab rates.