Advantages and disadvantages of investing in gilts, Financial Management

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Advantages and Disadvantages of Investing in Gilts

Advantages

As the security is issued by the GOI, it has a minimal default risk.

Investors have the opportunity to invest in very long-term debt sometimes up to 20 years because of the long maturity periods.

Almost all issues by the government have adequate liquidity except for a few. With the primary dealer authorized to deal in the buying and selling, he can take care of the liquidity.

 

Tax benefits

Tax benefits under Section 80L upto Rs.3,000 are available with no TDS (tax deducted at source). However, this benefit has been withdrawn from the Assessment Year 2005-06.

Disadvantages

The inflation will decrease the real return on the security and the possibilities of higher interest rates erode the value of the bond.

 


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