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 However, this benefit has been withdrawn from the Assessment Year 2005-06.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.