1. Since gilt funds are issued by the government, people wrongly believe that one can’t lose money in gilt funds.
2. There is no credit risk in gilt funds as the government will always return the money equivalent to the face value of gilts.
3. However, gilts are traded in the market, and their values go up and down on a daily basis.
4. An investor can, therefore, see fluctuations in the NAV of the invested gilt fund.
5. Consequently, some of the investors may see value erosion in their gilt investments too.