Gilts

emma77
emma77 Registered Posts: 3 New contributor 🐸
in AAT Level 3 (Level 6 in Scotland)
Hi

Hope someone can help me with this question:

What are the advantages and disadvantages of investing in GILTS? and how do they differ to shares?

Thanks

Comments

  • crispy
    crispy Registered Posts: 468 Dedicated contributor 🦉
    Hello,

    From what I can remember,

    Advantages:
    - They are very low risk, being issued by the government they are very unlikely to default on payments.
    - Offer a fixed interest rate over their period which can be greater than offered say by a high street bank
    - They can be traded on money markets
    Disadvantage:
    - Main disadvantage that in times of high interest rates, gilts will lose their market value (ie: as they become less attractive to investors)

    Gilts are effectively bonds issued by the UK government.Hope this helps however im sure there is a lot more that someone else can add?
  • timhamer
    timhamer Registered Posts: 7 New contributor 🐸
    As above

    The main difference between gilts and shares is the relative risk.

    If you buy shares, you take a much greater risk because you expect a greater return.

    Gilts as stated above are bonds issued by our government and hence are very low risk but carry a relatively low reward. The tend to be issued for long terms 10, 20 or 40 years and most are bought by pension funds - who need long term low risk investments to match their liabilities.

    The market price of a gilt will be based upon how good its rate is in comparison to other investment options; hence if you can get a better return by sticking your money in a deposit account in the bank the price of gilts will go down.

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