When the government wishes to borrow money it issues stock on which it guarantees to pay a fixed rate of interest and guarantees to repay the face value of the stock at a set maturity date. Gilts, as government stock is commonly known, make a very secure investment if purchased at issue and retained until maturity but they are also widely traded through stockbrokers or bank share dealing services. The Government’s Debt Management Office also offers a Gilt Purchase and Sale Service. Some managed funds also include gilts.
Gilts can prove an attractive option if purchased at a time when interest rates are likely to fall as they will continue to pay a higher rate of interest than may become available from a variable rate investment, and are likely to increase in value. However, care should be exercised in purchasing gilts if interest rates are at relatively low levels as this could result in a capital loss, even if held to maturity.
Posted in: Investments
