UNIT.

IV
Financial Markets - Call Money Market - Treasury Bills Market - Commercial Bills
Market - Markets for Commercial paper and Certificates of Deposits - The Discount
Market - Market for Financial Guarantee - Government (Gilt-edged) Securities
Market

Financial Markets
A financial market is a word that describes a marketplace where bonds, equity,
securities, currencies are traded. Few financial markets do a security business of
trillions of dollars daily, and some are small-scale with less activity. These are markets
where businesses grow their cash, companies decrease risks, and investors make more
cash.

Meaning of Financial Markets

A Financial Market is referred to space, where selling and buying of financial assets and
securities take place. It allocates limited resources in the nation’s economy. It serves as
an agent between the investors and collector by mobilising capital between them.
In a financial market, the stock market allows investors to purchase and trade publicly
companies share. The issue of new stocks are first offered in the primary stock market,
and stock securities trading happens in the secondary market.
Definition: Financial Market refers to a marketplace, where creation and trading of
financial assets, such as shares, debentures, bonds, derivatives, currencies, etc. take
place. It plays a crucial role in allocating limited resources, in the country’s economy.
It acts as an intermediary between the savers and investors by mobilising funds
between them.
Types of Financial Markets
Over the Counter (OTC) Market – They manage public stock exchange, which is not
listed on the NASDAQ, American Stock Exchange, and New York Stock Exchange. The
OTC market dealing with companies are usually small companies that can be traded in
cheap and has less regulation.
Bond Market – A financial market is a place where investors loan money on bond as
security for a set if time at a predefined rate of interest. Bonds are issued by
corporations, states, municipalities, and federal governments across the world.
Money Markets – They trade high liquid and short maturities, and lending of securities
that matures in less than a year.
Derivatives Market –They trades securities that determine its value from its primary
asset. The derivative contract value is regulated by the market price of the primary item
— the derivatives market securities, including futures, options, contracts-for-difference,
forward contracts, and swaps.
Forex Market – It is a financial market where investors trade in currencies. In the entire
world, this is the most liquid financial market.
What are Financial Markets and Institutions?
Financial markets dispense efficiently flow of investments and savings in the economy
and facilitate the growth of funds for producing goods and services. The right blend of
financial products and instruments and financial markets and institutions fuels the
demands of investors, receiver and the overall economy of a country.
Financial markets (bonds and stocks), instruments (derivatives, bank CDs, and futures),
and institutions (banks, pension funds, insurance companies, and mutual funds) give
the investors the opportunities to specialize in specific services and markets. As quoted
by Demirgcc-Kunt and Levine “Financial markets and financial institutions together
contribute to economic growth and not the relative mix of these two factors”.
The financial market provides a platform to the buyers and sellers, to meet, for trading
assets at a price determined by the demand and supply forces.
Functions of Financial Market
The functions of the financial market are explained with the help of points below:
It facilitates mobilisation of savings and puts it to the most productive uses.
It helps in determining the price of the securities. The frequent interaction between
investors helps in fixing the price of securities, on the basis of their demand and supply
in the market.
It provides liquidity to tradable assets, by facilitating the exchange, as the investors can
readily sell their securities and convert assets into cash.
It saves the time, money and efforts of the parties, as they don’t have to waste
resources to find probable buyers or sellers of securities. Further, it reduces cost by
providing valuable information, regarding the securities traded in the financial market.
The financial market may or may not have a physical location, i.e. the exchange of asset
between the parties can also take place over the internet or phone also.
Classification of Financial Market

By Nature of Claim
Debt Market: The market where fixed claims or debt instruments, such as debentures
or bonds are bought and sold between investors.
Equity Market: Equity market is a market wherein the investors deal in equity
instruments. It is the market for residual claims.
By Maturity of Claim
Money Market: The market where monetary assets such as commercial paper,
certificate of deposits, treasury bills, etc. which mature within a year, are traded is
called money market. It is the market for short-term funds. No such market exist
physically; the transactions are performed over a virtual network, i.e. fax, internet or
phone.
Capital Market: The market where medium and long term financial assets are traded in
the capital market. It is divided into two types:
Primary Market: A financial market, wherein the company listed on an exchange, for
the first time, issues new security or already listed company brings the fresh issue.
Secondary Market: Alternately known as the Stock market, a secondary market is an
organised marketplace, wherein already issued securities are traded between investors,
such as individuals, merchant bankers, stockbrokers and mutual funds.
By Timing of Delivery
Cash Market: The market where the transaction between buyers and sellers are settled
in real-time
Futures Market: Futures market is one where the delivery or settlement of commodities
takes place at a future specified date.
By Organizational Structure
Exchange-Traded Market: A financial market, which has a centralised organisation
with the standardised procedure.
Over-the-Counter Market: An OTC is characterised by a decentralised organisation,
having customised procedures.
Since last few years, the role of the financial market has taken a drastic change, due to a
number of factors such as low cost of transactions, high liquidity, investor protection,
transparency in pricing information, adequate legal procedures for settling disputes,
etc.

Money Market 
The money market is referred to as dealing in debt instruments with less than a year to
maturity bearing fixed income. In this article, we will cover the meaning of money
market instruments along with its types and objectives
What is money market?
It is a financial market where short-term financial assets having liquidity of one year or
less are traded on stock exchanges. The securities or trading bills are highly liquid. Also,
these facilitate the participant’s short-term borrowing needs through trading bills. The
participants in this financial market are usually banks, large institutional investors, and
individual investors.
There are a variety of instruments traded in the money market in both the stock
exchanges, NSE and BSE. These include treasury bills, certificates of deposit,
commercial paper, repurchase agreements, etc. Since the securities being traded are
highly liquid in nature, the money market is considered as a safe place for investment.
The Reserve Bank controls the interest rate of various instruments in the money market.
The degree of risk is smaller in the money market. This is because most of the
instruments have a maturity of one year or less.
Hence, this gives minimal time for any default to occur. The money market thus can be
defined as a market for financial assets that are near substitutes for money.
What is the importance of money markets in the economy?
The money market plays a very significant role in the economy. It allows a variety of
participants to raise funds. It offers liquidity to both the investors and the borrowers.
And hence maintaining a balance between the demand and supply for money. Thus
facilitating the development and growth of the economy.
Objectives of Money Market
Below are the main objectives of the money market:
Providing borrowers such as individual investors, government, etc. with short-term
funds at a reasonable price. Lenders will also have the advantage of liquidity as the
securities in the money market are short-term.
It also enables lenders to turn their idle funds into an effective investment. In this way,
both the lender and borrower are at a benefit.
RBI regulates the money market. Therefore, in turn, helps to regulate the level of
liquidity in the economy.
Since most organizations are short on their working capital requirements. The money
market helps such organizations to have the necessary funds to meet their working
capital requirements.
It is an important source of finance for the government sector for both national and
international trade. And hence, provides an opportunity for the banks to park their
surplus funds.
Meaning of Money Market Instruments
Below are a few of the money market instruments in India:
Call/notice money
It is a segment of the market where scheduled commercial banks lend or borrow on
short notice (say a period of 14 days). In order to manage day-to-day cash flows.
Treasury bills
T-bills are one of the safest money market instruments. The Central Government issues
this financial instrument and it carries an attractive interest rate. Also, these come with
different maturity periods of 3, 6 months, and 1 year.
Inter-Bank Term Market
This market was initially only for commercial and co-operative banks but are now
available to various financial institutions as well. The interest rates are market-driven.
Also, the market is predominantly a 90-day market.
Certificate of Deposit
Certificates of Deposit, CD are term-deposits accepted by the commercial banks at
market rates.
Also, all scheduled banks (except RRB’s and Cooperative banks) are allowed to issue
CP. It can be issued for a period of 3 months to 1 year.
For a single investor, this financial instrument can be issued up to 5 lakhs.
Features of the Money Market Instruments
The money market can be called as a collection of the market. Its main feature is
liquidity. All the submarkets, such as call money, notice money, etc. have close
interrelation with each other. This helps in the movement of funds from one sub-market
to another.
The volume of traded assets is generally very high.
It enables the short-term financial needs of the borrowers. Also, it deals with
investments that have a maturity period of 1 year or less.
The money market is still evolving. There is always a possibility of adding new
instrument
What is maturity?
The maturity in respect of money market instruments means the time period within
which the securities will mature. This is generally less than a year in case of money
market instruments.
What is the yield on security?
In simple words, the yield is the interest rate earned by investing securities It can be
calculated by the below formula:
Yield = (Face value – Sale value)/sale value* (days or months in a year/period of
discount)*100
Let’s understand the above with the help of an example:
Face value or amount of issue – Rs. 100
Period  – 6 months
Discount rate – 10%
Discount – 100*(6/12)*(10/100) = Rs. 5
By using the above formula for yield we get
Y = (100-95)/100*(12/6)*100
   = 10%
Types of money market instruments in India
Below are the types of money market instruments:
Treasury Bills
T-bills are one of the most popular money market instruments. They have varying
short-term maturities. The Government of India issues it at a discount for 14 days to 364
days.
These instruments are issued at a discount and repaid at par at the time of maturity.
Also, a company, firm, or person can purchase TB’s. And are issued in lots of Rs. 25,000
for 14 days & 91 days and Rs. 1, 00,000 for 364 days
Commercial Bills
Commercial bills, also a money market instrument, works more like the bill of
exchange. Businesses issue them to meet their short-term money requirements.
These instruments provide much better liquidity. As the same can be transferred from
one person to another in case of immediate cash requirements
Certificate of Deposit
Certificate of deposit or CD’s is a negotiable term deposit accepted by commercial
banks. It is usually issued through a promissory note.
CD’s can be issued to individuals, corporations, trusts, etc. Also, the CD’s can be issued
by scheduled commercial banks at a discount. And the duration of these varies between
3 months to 1 year. The same, when issued by a financial institution, is issued for a
minimum of 1 year and a maximum of 3 years.
Commercial Paper
Corporates issue CP’s to meet their short-term working capital requirements. Hence
serves as an alternative to borrowing from a bank. Also, the period of commercial paper
ranges from 15 days to 1 year.
The Reserve Bank of India lays down the policies related to the issue of CP’s. As a
result, a company requires RBI‘s prior approval to issue a CP in the market. Also, CP
has to be issued at a discount to face value. And the market decides the discount rate.
Denomination and the size of CP:
Minimum size – Rs. 25 lakhs
Maximum size – 100% of the issuer’s working capital
Call Money
It is a segment of the market where scheduled commercial banks lend or borrow on
short notice (say a period of 14 days). In order to manage day-to-day cash flows.
The interest rates in the market are market-driven and hence highly sensitive to
demand and supply. Also, the interest rates have been known to fluctuate by a large %
at certain times.
Money Market Instruments vs Stocks

Particulars Money Market Instruments Stocks

Maturity of the The money market instruments However tradable in the short term,
instruments carry a maturity period of less than stocks create wealth creation when
a year. invested for a number of years.
 Financing needs These instruments are used to fund Used for long-term fund
the short-term needs of the requirements.
borrower.

Types of It has instruments like T-bills, It’s a stock of an independently listed

instruments certificate of deposits, inter-bank company
call money, etc.

Degree of risk Risk is comparatively lower due to Risk is higher.

the short-term maturity period

What are Money Market Mutual Funds?

Money market mutual funds, MMMFs are highly liquid open-ended dent funds
generally used for short term cash needs. The money market fund deal only in cash and
cash equivalents with an average maturity of an year with fixed income
The fund manager of a money market fund invests in money market instruments like
treasury bills, commercial paper, certificate of deposits, bills of exchange etc.
What factors determine interest rates of money market instruments?
Currently, the interest rate is dependent on the market forces of demand for; and
supply of short term money.
Fiscal deficit, for example, occurs when the government expenditure is more than
government revenue. To fund this deficit, the government requires money which in
turn leads to borrowing by the government and hence influencing the interest rates. 
In other words, the higher the fiscal deficit more will be the money required by the
government. Hence, it will lead to an increase in interest rates.
What is the Purpose of the Money Market?
The purpose of the money market:
Money market maintains liquidity in the market. RBI uses money market instruments
to control liquidity.
It finances short term needs of the government and economy. Any business or
organisation can borrow money at short notice for a short term.
Helps in utilising surplus funds in the market for a short term to earn an additional
return. It channelises savings to investments.
Assists in mobilising funds from one sector to another with the utmost transparency
Guides in devising monetary policies. The current money market conditions are the
result of previous monetary policies. Hence it acts as a guide for devising new policies
regarding short term money supply.
What are the characteristics of money market instruments?
The main features of the money market are:
The money market is a financial market and has no fixed geographical location.
It is a market for short term financial needs, for example, working capital needs.
The money market’s primary players are the Reserve Bank of India (RBI), commercial
banks and financial institutions like LIC, etc.,
The main money market instruments are Treasury bills, commercial papers, certificate
of deposits, and call money.
A money market is highly liquid as it has instruments that have a maturity below one
year.
Most of the money market instruments provide fixed returns.
What is the importance of the money market?
The money market is a market for short term transactions. Hence it is responsible for
the liquidity in the market. Following are the reasons why the money market is
essential:
The money market maintains a balance between the supply of and demand for the
monetary transactions done in the market within a period of 6 months to one year..
It enables funds for businesses to grow and hence is responsible for the growth and
development of the economy.
The money market aids in the implementation of monetary policies.
The money market helps develop trade and industry in the country. Through various
money market instruments, it finances working capital requirements. It helps develop
the trade in and out of the country.
The short term interest rates influence long term interest rates. The money market
mobilises the resources to the capital markets by way of interest rate control.
The money market helps in the functioning of the banks. It sets the cash reserve ratio
and statutory liquid ratio for the banks. It also engages their surplus funds towards
short term assets to maintain money supply in the market.
The current money market conditions are the result of previous monetary policies.
Hence it acts as a guide for devising new policies regarding short term money supply.
Money market instruments like T-bills, help the government raise short term funds.
Otherwise, to fund projects, the government will have to print more currency or take
loans leading to inflation in the economy. Hence the money market is also responsible
for controlling inflation.
Discount Market
Retailers adopt different methods to attract customers. Because of this reason, different
formats of retail stores were introduced, such as warehouse stores, department stores,
dollar stores, discount stores, boutiques, and specialty stores. Discount stores are a
category of retail stores where retailers sell merchandise at discounted prices.
Most of the discount stores are like departmental stores as they sell a variety
of products under the roof. The difference between department stores and discount
stores is that in discount stores, merchandise is sold at good discounts.
Discount store retailers buy products in vast quantities from manufacturers to get a
massive discount. Products that don’t have expiry limits such as clothes and shoes are
bought from manufacturers in the off-season.
For example, discount stores purchase Christmas decorations and outfits in the off-
season at substantial discounts and sell them Christmas at lower prices than the other
retail store owners.
In addition to this, discount stores buy directly from manufacturers. In this way, they
skip the middleman expense altogether. By adopting these methods, discount store
owners achieve a lower purchasing price, which helps them in reducing the selling
price for products.
There are many famous examples of discount stores such as Walmart, Kmart, Best Buy,
and Target, etc.
In this article, you will learn about the definition, features, advantages, and
disadvantages of discount stores.
Definition of a Discount Store
A discount store is a retail store that sells products at lower prices than most of the
other retail stores.
Features of a Discount Store
The followings are the features of a discount store.
1. Sells a variety of products
The primary function of discount stores is that it sells different types of products under
one roof. A person can buy all the products that he needs for his household in one store.
Discount stores along with selling things for day-to-day use, also sell rarely purchased
items such as electronics, etc.
2. Lower prices
Another main feature of the discount store is that discount stores products are sold at
substantial discounts. Therefore, one can buy products at quite more economical rates
than the regular prices of the products. Because of this reason, most people prefer to
purchase goods from discount stores rather than buying from another retail store.
3. Low or no customer service
In discount stores, zero or a little customer service is provided to customers. Products
are displayed on shelves in an arranged manner. Each section is given proper names,
and direction signs are designed so that people can find products easily without any
assistance.
However, these stores provide central support to their customers, such as at the billing
counter or packing counter.
4. Huge size
Discount stores are usually significant. It sells products of several categories from
jewelry to food items. There are several brands of one type of product available in a
discount store.
Advantages of a discount store
Profitable business option for both retailers as well as the buyer. The retailer gets a large
number of customers and massive sales. Similarly, a buyer receives a significant
discount on the things that he buys frequently.
All products are sold under one roof. No matter what you want to buy you can find it
in your nearby discount retail stores.
Products are sold at massive discounts in discount stores. This is why a large segment
of the population prefers to shop from discount stores.
In discount stores, one can find several options for one product. You can buy any
product as per your budget and requirement.
In discount stores, you are not get followed by salespersons. If you prefer shopping in
peace all by yourself then discount, stores are the best option for you obviously after
online stores.
Shopping is comfortable in discount stores. You can buy products that you need at
lower prices in a well-airconditioned store.
Disadvantages of a discount store
You will not find fashionable products in a discount store. Even the clothes sold in
discount stores are not trendy.
Non-durable goods sold in discount stores are of private brands. Only durable goods
are bought from well-known brands.
Products sold in discount stores are usually of cheap quality.
You will not be provided with any assistance in making your purchase decision in
discount stores.
Sometimes, it becomes difficult to find a product in a vast store without the support of
salespersons. New shoppers get tired wandering from one section to another section.
Most people prefer to shop from discount stores in the hope of saving money.
Therefore, these stores are usually full of crowds.
Right quality products get out of stock very early, and you will mostly find low-quality
products.
Clothes sold in these stores are usually of poor quality and old-fashioned. Therefore, if
you are a fashion-conscious person, then you will not like the apparel sold in discount
stores.
Shopping in discount stores is very time-consuming. As you are required to go from
one section to another to buy the things on your shopping list.
Many discount stores have started manually check out machines, which a non-tech
savvy person finds confusing.

Financial Guarantee
A financial guarantee is a contractual promise made by a bank, insurance company, or
other entity to guarantee payment of a debt obligation of another party – such as a
company. Essentially, a financial guarantee is a type of warranty attached to a debt.
Individuals may also provide financial guarantees, such as when a parent co-signs a
loan for their child.
A financial guarantee is a contract by a third party (guarantor) to back the debt of a
second party (the creditor) for its payments to the ultimate debtholder (investor).
To understand financial guarantee better, let us assume that a company ABC promises
to back the loan availed by its subsidiary company XYZ. In such a case, company ABC
will be required to pledge assets that can cover the debt if company XYZ defaults
payments to the ultimate lender. A financial guarantee will also increase the borrowing
company's credit rating.
The individual or entity who provides a financial guarantee is referred to as the
guarantor of the debt obligation. Its purpose of financial guarantees is to reduce or
mitigate risk for the lender or investor who provided the money borrowed.
A common example of a financial guarantee is where an insurance company provides
such a guarantee for bonds issued by a company for financing. The insurance company
ensures that the bond purchasers will be paid back their principal investment and the
interest due to them, even if the company issuing the bonds defaults on repaying them
Different Types of Financial Guarantees
There are numerous situations in which a financial guarantee may be required or
utilized. Also, there are several different sources of financial guarantees – individuals,
companies, banks, insurance companies, and other entities. Below are some of the most
common situations where they are used:
 1. Individual financial guarantees
Financial guarantees provided by individuals occur all the time. Parents with good,
established credit may become a guarantor of debt by co-signing a loan agreement or
rental agreement for one of their children who lacks an established credit history or
with a lower credit rating.
 2. Bond guarantees
Many bonds issued by companies are supported with a financial guarantee of the
bond’s payments to investors by an insurance company. In such cases, the insurance
company may provide either a full or partial guarantee of the bond payments due.
 3. Financial guarantees from companies
Public or private companies commonly provide financial guarantees for their
subsidiary companies. The parent company of a subsidiary typically own more
extensive financial resources than the subsidiary company does. Therefore, if the
subsidiary is seeking a large loan, the lender may require the parent company to act as a
guarantor of the loan.
The lender may simply require a contractual obligation by the parent company to cover
the debt repayment if necessary, or it may require that the parent company pledge
assets as collateral for the loan. A company involved in a joint venture may also act as a
guarantor of a debt obligation if it is financially much larger and financially sound than
its partner in the joint venture.
 4. Bank financial guarantees
Banks frequently provide a wide variety of financial guarantees for their clients. One of
the most commonly issued types of bank guarantees is a guarantee of payment to a
seller by a buyer. Such a guarantee is often used in the case of large international
transactions. As the seller may not lack sufficient knowledge about the buyer, they may
require a guarantee of payment from the buyer’s bank.
The buyer’s bank may, in turn, require the buyer to deposit the necessary funds for the
purchase with the bank. A bank may also provide what is known as a performance
or warranty bond that essentially guarantees that the goods provided to a buyer are as
promised and delivered as agreed by contract with the seller.
Banks also sometimes provide an advance payment guarantee, which is a promise to
refund any advance payment on goods made by a buyer in the event that the seller fails
to deliver the goods.
 Why Financial Guarantees are Made?
Financial guarantees are important because they facilitate many different types of
transactions. As you can easily see from any of the examples given above, financial
guarantees make it possible to do business that may otherwise not be able to be
conducted – such as making it possible for individuals to obtain loans for purchases, for
companies to issue debt in the form of bonds, or for large cross-border transactions to
take place.
Government (Gilt-edged) Securities Market
Gilt-edged security – definition and meaning
A gilt-edged security is either a bond that a government issues or a bond that a top-
quality company issues. The top-quality company has a long record of good earnings. It
also has a consistent record of paying its debts and other obligations punctually.
Therefore, investors know that the company is a reliable payer of interest and
dividends.
Britons commonly use the term when referring to bonds that the government issues
through the bank of England. They either use the term ‘gilt-edged security’ or ‘gilt.’
They are the equivalent of American Treasury securities.
Some Commonwealth nations, including India and South Africa, also use the term
when talking about government bonds.
Gilt-edged securities originally had gilded edges, hence the name.
People use the term ‘gilt-edged security’ colloquially to denote high-grade bonds. In
other words, bonds that carry low yields, versus below investment-grade securities
which are relatively riskier.

Gilt-edged security – history

The first fundraising that historians consider a gilt issue occurred in 1694 in England.
King William III needed money to fund the war with France. He raised £1.2 million via
the Bank of England, which had just been created.
However, it was not until the late 19th century that people began using the term ‘gilt’
for these kinds of debt securities.
Raising money via gilt-edged security selling became a popular and successful way of
raising funds. Especially money that the country required to fund wars.
Later, however, the government sold gilts to fund infrastructure projects when tax
revenues were not enough.
Initially, gilt-edged securities were ‘perpetual.’ In other words, they had no specific
maturity date.
The government began calling them under various names. It later referred to them
as Consols.
Gilt-edged security – maturity
Gilt-edged securities have three definitions regarding their maturity, according to
the UK Debt Management Office (DMA):
Long 15+ years.
Medium 7-15 years
Short 0-7 years.
Investors often use the term ‘ultra-short‘ for gilts with a term maturity of under three
years. ‘Ultra-long‘ gilts have a term maturity of more than fifty years.
Government securities are instruments issued by the government to borrow
money from the market. They are also known as gilts or gilt edged securities
 “Government security” means a security created and issued by the
Government for the purpose of raising a public loan or for any other purpose as
may be notified by the Government in the Official Gazette and having one of
the forms mentioned in the Government Securities Act, 2006.
Depending upon the expiry date, government securities are divided into short
term and long term securities.
Short term government securities are Treasury bills. They have a maturity of
less than one year. There are three main treasury bills in India – 91 day, 182 day
and 364 day.
Long term government securities are known as government bonds or dated
securities. They have a maturity period of five years, ten years, fifteen years etc.
 Now, government securities are popular investment assets for most of the
financial institutions especially commercial banks. They prefer government
securities because of many features unique to them.
         Since financial institutions are bulk dealers of investable resources,
government securities simultaneously provide the advantages of safety,
liquidity and bulk investment opportunity. They thus possess the three
unbelievably good qualities for a financial asset. Following features of
government securities earned them the name of gilt edged securities.
They have zero income default
There is high rate of return
There is cent per cent liquidity
The first feature indicates that if we make investment in G secs, we will not
loss our money. This is because, government rarely fails financially and there is
no risk for losing our money or there is zero income default.
Second feature is that they have a reasonably high rate of interest. In India, the
G secs are allocated among the buyers through auction method. This auction
ensures competitive interest rate for government securities. Given their zero
risk default nature, the interest rate is very good for Gsecs.
Third feature of G secs is that they are very liquid. This is because the Gsecs
are tradable in the stock m market. This means, to get money, the holder can
sell it in the stock market. High marketability and tradability gives high
liquidity for Gsecs. For commercial banks, by pledging government securities
with RBI, it can avail a one day loan known as repo. Whenever a bank need
money it can approach the RBI to take loans by pledging the g secs.
Because of the collective existence of these three features, government
securities are known as ‘gilt edged securities.’
Gilt Funds: Advantages & Disadvantages
Advantages:
As the major capital is parked in the government securities, the credit risk is reduced to
a great extent.
It will also aid you to slice your tax liability.
The common man can’t have a blooming pocket to invest directly in the government
securities. So, they can enjoy the benefit of investment in government securities with a
minimal amount of Rs.5000.
Your Capital is in safe hands.
Guaranteed return because Reserve Bank of India (RBI) plays an important part in gilt
funds
You can enjoy Portfolio Diversification.

Disadvantages:
Like any other mutual fund Gilt Fund are not 100% secure.
These funds get directly affected due to the changes in interest rates.
Gilt funds are not so liquid as they can’t be traded like other securities.

Major Players in the Market:

Reliance Gilt Sec. – RP
SBI Magnum Gilt – LTP
ICICI Pru Long Term Gilt
HDFC Gilt Fund – LTP
Birla Sun Life GSec – LTF

Dr.K.Ramesh, MCS., M.Phil., MBA., M.Com, Ph.D., SET.

Professor of Commerce,
KSR College of Arts and Science (Autonomous),
Tiruchengode-637215