Quick Overview
If you’ve been tracking Indian bond markets lately, you’ve probably felt the weight of rising bond yields and wondered whether there’s a way you can benefit from this uptrend. Looking at how bond yields have climbed to multi-year highs, the year 2026 will be a crucial year for fixed income investors in India, sparking concerns for borrowers while creating an interesting opportunity for fixed-income investors.
For those seeking best fixed-income investments in India, rising yields open doors to attractive entry points in government-backed securities through gilt funds.
In this blog, we’ll explore why high yields can be a golden opportunity for investors. We will also compare gilt funds with fixed bonds and other options, and help you understand if this fits your long-term portfolio.
Understanding Bond Yields and Their Impact on Fixed Income Investments in India
What Are Bond Yields and Why Are They Rising?
Bond yields represent the return an investor earns from holding government or corporate bonds. Yields and prices move inversely: when yields rise, the market value of bonds falls.
India’s 10-year benchmark government bond yield jumped 19 basis points in August 2025 to around 6.4651%, marking the largest monthly rise in three years Reuters, Sept 2025. To put it simply, 100 basis points make a percent, so a 19-basis-point jump means the yield increased by 0.19 percent in just one month.
Why does this matter to you as an investor?
Think of bond yields like the interest rates you earn on a loan you give to the government. When yields rise, new bonds and gilt funds bought today lock-in higher interest income. Even if the government is staring at higher borrowing costs, you benefit as a fixed-income investor.
Also, note that the repo rate (the Reserve Bank of India (RBI) defined rate at which banks borrow from RBI) is still at 5.50%, which is lower than the 10-year yield of government securities (G-Secs). This gap means gilt funds (which invest in G-Secs) can offer attractive returns compared to traditional fixed-income options like company fixed deposits (FDs) or bank FDs. For someone looking at the best fixed-income investments in India, this divergence between bond yields and policy rates makes gilt funds a strong candidate for capital preservation and potential interest income.
Understanding Gilt Funds in India
Gilt funds are mutual fund schemes that invest only in G-Secs. Unlike corporate bonds, they carry almost no credit risk because repayment is guaranteed by the Government of India.
When yields rise, gilt funds’ Net Asset Values (NAVs) dip in the short-term. But for investors entering at these high-yield levels, there is potential for bond returns to rise sharply when yields stabilize or fall again.
That’s why many advisors recommend gilt funds among the ideal fixed-income instruments to invest in India during phases of elevated bond yields.
Gilt Funds vs Fixed Bonds/FDs: Key Differences
Feature | Gilt Funds | Company Fixed Deposits (FDs) / Bank FDs |
| Nature of Investment | Mutual funds schemes investing in government securities | Direct investment in government/corporate FDs or bank deposits |
| Liquidity | High – can be redeemed anytime at prevailing NAV | Moderate to low – fixed tenure, early exit penalties |
| Risk | Market risk (NAV fluctuates with yields), but no credit risk | Credit risk in corporate FDs, negligible in Bank FDs |
| Returns | Market-linked bonds returns, benefit from falling yields. | Fixed bonds returns, predictable but capped |
| Accessibility | Via AMCs, banks, fintech platforms | Bonds via brokers/ distributors, Bank FDs. |
| Best For | Investors seeking best fixed- income investments in India with market-linked upside | Investors seeking stability and assured income through fixed investment plans |
Why Rising Yields Create Opportunity for Gilt Funds
When yields are at highs, gilt funds effectively allow investors to “buy-low.” When yields soften in the coming time (as interest rates peak out or inflation cools), NAVs of gilt funds will rise, delivering attractive capital appreciation alongside regular coupon income.
In contrast, locking into a fixed investment plan such as Corporate FD during high yield phases may mean missing out on price appreciation potential.
The Ideal Investment Horizon
Gilt funds are best suited for investors with a 3–5 year horizon. This allows enough time for interest rate cycles to turn in their favor. Unlike equity mutual funds, gilt funds don’t require decades of patience, but short-term investors may face volatility if yields rise further before stabilizing.
Risk Factors to Consider
Every investment comes with trade-offs. Here are key risks to keep in mind:
Interest Rate Risk: If the RBI continues to raise rates, gilt fund NAVs may dip in the short term, affecting returns.
Comparison with Fixed Bonds and FDs: While fixed bonds or bank FDs provide stability and predictable income, they typically lack the upside potential that gilt funds can offer during high-yield phases.
Portfolio Balance: Savvy investors often combine gilt funds with other fixed investment plans and income instruments to balance risk while maximizing growth potential.
How Investors Can Approach Gilt Funds Today
Investors can access gilt funds through:
- Asset management companies and MF distributors
- Online fintech platforms and investment advisors
- Systematic Investment Plans (SIPs), which remain the best way to invest in gilt funds for most investors as they average out volatility.
- Asset management companies and MF distributors
FAQs on Gilt Funds and Rising Bond Yields
1. Are rising bond yields good for gilt funds?
Ans: Yes. Bond yields and bond prices have an inverse relationship, and rising bond yields cause a decline in bond prices. However, for new investors, gilt funds at higher yields provide entry at attractive valuations, with potential for stronger bonds returns when yields decline.
2.Why Rising Bond Yields Present a Golden Entry Opportunity for Gilt Fund Investors?
Ans: Because investors can lock into government-backed securities at higher yields, and benefit from capital appreciation when bond yields ease. This dual advantage makes gilt funds one of the best fixed income investments India has right now.
3. Should I invest in gilt funds when the RBI is raising interest rates?
Ans: Yes, but with caution. If the RBI is still hiking, NAVs may dip further before recovering. SIPs help mitigate timing risks.
4. What is the ideal investment horizon for gilt funds during high bond yields?
Ans: 3–5 years. This allows for interest rate cycles to normalize and for NAVs to capture price appreciation alongside coupon income.
5. Can I use SIPs to invest in gilt funds during high yield phases?
Ans: Yes, SIPs are often the best way to invest in gilt funds, averaging out entry points and reducing risk of mistiming.
6. What role do gilt funds play in a diversified portfolio?
Ans: They add stability, safety (government backing), and potential for medium-term growth while balancing equity exposure.
7. Which type of investor should consider gilt funds during rising yields?
Ans: HNIs, NRIs, and conservative investors seeking low credit risk but higher yield potential than corporate FDs or bank FDs.
Conclusion
In times of rising yields, gilt funds emerge as a lucrative opportunity: government-backed capital safety with potential for growth. For HNIs and NRIs seeking diversification beyond equities, gilt funds deserve serious attention as one of the best fixed income investments India offers in 2026.
At Rurash Financials, we specialize in tailoring portfolios that balance fixed-income investment opportunities in India along with equities, alternatives, and global exposure.
Consult with a Rurash advisor today to discover how gilt funds can fit into your wealth-building strategy for the near future.
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