GILT Funds are those funds which invest their corpus only in government securities or GILTs. When the government is in need of funds, it approaches the Reserve Bank of India (RBI). In order to lend money, RBI collects money from entities such as banks, insurance companies, etc. and issues them government securities in return. These government securities are purchased by Fund managers of GILT Funds.

As these funds invest in low-risk debt, they are an ideal choice for investors who have a limited risk appetite and are comfortable with modest returns. However, GILTs are not guaranteed and the returns fluctuate highly with the change in interest rates in the market.