# Gilts: Types and How to Invest

![Gilts](https://www.investopedia.com/thmb/Hgo6MtXvvBS3CZuhEFYBSU8KXLk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/gilts.asp-final-d4f71f8e86f44ff6b0909fe3d5c57b8b.png)

*— Investopedia / Ryan Oakley*

> **Definition**
>
> Gilts are government issued debt securities in the United Kingdom, India, and other Commonwealth countries.

## What Are Gilts?

Gilts are government bonds issued in the U.K., India, and Commonwealth countries and are similar to [U.S. Treasury](https://www.investopedia.com/terms/u/ustreasury.asp) securities. The term gilts is derived from the certificates with gilded edges that were historically issued by the British government and is still used as an indication of the integrity of the investment.

The British government has never failed to pay the interest due on its gilts, which have been issued since 1694 when money was needed to finance a war with France.

Like U.S. Treasury securities, gilts pay a relatively low but virtually risk-free rate of return. They are sensitive to interest rate changes but offer diversification due to their low or negative correlation with stock markets.

### Key Takeaways

*   The gilt market includes index-linked gilts tagged to inflation as well as conventional gilts.  
    
*   Investors outside the U.K. can invest in ETFs or mutual funds that invest primarily in U.K. government bonds.
*   Low-risk corporate bonds are often referred to as gilt-edged securities.  
    

## Conventional Gilts

Conventional gilts, which comprise the majority of U.K. government debt, are issued in denominations of the British pound and are not subject to inflation adjustments.

Conventional gilts are nominal bonds that promise to pay a [fixed coupon rate](https://www.investopedia.com/terms/f/fixedrate-bond.asp) at set intervals, such as every six months. When a conventional gilt matures, its holder receives the last coupon and the principal.

When issued, the coupon rate of a conventional gilt approximates the market interest rate at that time. Conventional gilts have prescribed maturities, which are often five, 10, or 30 years from the date of issuance.

## Index-Linked Gilts

Index-linked gilts have borrowing rates and principal payments that are linked to changes in the inflation rate. These gilts are similar to U.S. Treasury Inflation-Protected Securities (TIPS).

The U.K. was the first country to issue inflation-indexed bonds in 1981. [Index-linked gilts](https://www.investopedia.com/terms/g/giltfund.asp) were first introduced in India in 2013.

Index-linked gilts in the U.K. make coupon payments every six months, coupled with the principal at maturity. Coupon rates are adjusted to reflect changes in the U.K. retail price index.

For gilts issued after September 2005, coupon rates are adjusted based on the inflation rate published three months previously. Securities issued before September 2005 use an eight-month lag.

## Corporate Bonds or Gilt-Edged Securities

Low-risk corporate bonds and stocks are often called gilts or gilt-edged securities. A gilt-edge denotes a high-quality item, the value of which remains relatively stable over time.

Private sector gilts or gilt-edged securities should not be confused with government bonds. Corporate gilts in the U.K. or Commonwealth countries are considered the equivalent of blue-chip securities in the United States.

A bond described as gilt-edged has top ratings assigned by credit rating services such as Standard & Poor's or Moody's. Gilt-edged bonds have yields below those offered by more speculative bonds. These bonds often serve as the cornerstone of investment portfolios for conservative investors whose priority is capital preservation.

> **Fast Fact**
>
> Private investors can buy gilts on the primary market administered by the U.K. Debt Management Office or through the secondary market via authorized government brokers.

## Gilt Funds

Gilt funds are exchange-traded funds (ETFs) or mutual funds that invest primarily in government bonds in the U.K.

Gilt funds have the conservative objective of preserving capital. Gilt funds often invest in several different types of short-term, medium-term, and long-term [government securities](https://www.investopedia.com/terms/g/governmentsecurity.asp). An example of gilt funds is the iShares Core U.K. Gilts UCITS ETF, which invests in U.K. government securities. The fund's one-year return in 2024 was -3.3% with a 0.07% expense ratio.

## How Do Gilt Values Change With Interest Rates?

Gilts see their market values change as market rates change. Generally, when interest rates rise, the value of existing bonds falls. When rates fall, bond values rise.

## Do Investors Have to Hold Gilts to Maturity?

No, investors do not have to hold a gilt until it reaches its maturity date. Gilts can be sold on the secondary bond market.

## What Are Clean and Dirty Prices?

Clean and dirty prices are referred to when citing gilt prices on the secondary market. The clean gilt price is its price without accrued interest. The dirty price is the total price you must pay to buy a gilt, equal to its clean price plus any accrued interest since its last interest payment date.

## The Bottom Line

Gilts are government bonds in the United Kingdom and other Commonwealth countries, although the term is also used to refer to high-quality corporate bonds.

Gilts are considered safe investments, giving investors a consistent return, though their values can fluctuate with interest rate changes.

> **Article Sources**
>
> 1.  United Kingdom Debt Management Office. "[About Gilts](https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts)."
>     
> 2.  United Kingdom Debt Management Office "[About Gilts](https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts/)."
>     
> 3.  United Kingdom Debt Management Office. "[Index-Linked Gilts](https://www.dmo.gov.uk/data/gilt-market/index-linked-gilts/)."
>     
> 4.  United Kingdom Debt Management Office. "[How to Calculate Cash Flows on Index-Linked Gilts](https://www.dmo.gov.uk/media/0ltegugd/igcalc.pdf)," Page 1.
>     
> 5.  iShares. "[iShares Core UK GIlts UCITS ETF](https://www.ishares.com/uk/individual/en/products/251806/ishares-uk-gilts-ucits-etf)."