Though gilt funds have zero credit risk and hence attract investors who are risk averse, UTI has done well to remind potential investors that there are other hidden risks of interest rate fluctuation and liquidity in a particular instrument which might result in higher "impact" costs on transacting large volumes. In fact, the offer document states clearly: "The Indian government securities market is such that a large percentage of the total traded volumes on a particular day might be concentrated in a few securities. Consequently, the fund might have to incur a significant impact cost while transacting large volumes in a particular security."

UTI sources maintain that bulk of the funds are likelyto flow from provident funds and superannuation funds which are now allowed to invest up to 60 per cent of their corpus in government securities/dedicated gilt funds. PF funds can improve the yields on their investments by employing the mutual fund route where the portfolio of gilts is actively traded to maximise returns.

The G-SEC Fund offers both income and growth options with the facility for reinvestment of income under the income option and 'rollover' under the growth option. Besides, under the periodic investment plan a minimum investment of Rs 1,000 per month can be made over and above the initial minimum investment of Rs 10,000.

Under the rollover facility, investors in the growth option can offer units for repurchase on a day and re-invest either the entire sale proceeds or a part into units of G-SEC the following day and book capital gains in a "tax-efficient" manner. Interestingly, the G-SEC Fund also proposes to employ hedging mechanisms like futures and options, and other derivativesinstruments.