The gilt mutual fund category is among the toppers on the return chart. The average return posted by the category is 13.24 per cent in one year. However, the best performers in the category are offering as high as 16 per cent in one year. Even the worst performer in the category is also offering double-digit returns. Mutual fund managers believe that these schemes might continue to do well because of a host of favourable factors, both domestic and international fronts. The question is whether mutual fund investors should bet their money on these schemes?“Returns of gilt funds are directly linked to fall in G-sec yields. 10-year G-sec benchmark yield has come down from 8 per cent plus levels in the first half of FY2019 to sub-7 per cent currently. Various factors contributed to this fall in G-sec yields – large scale OMO buybacks by RBI , global growth concerns, softening in crude prices and benign CPI,” says Naresh Kumar, fund manager (fixed income), Tata Mutual Fund Hopes of further softening of interest rates are also boosting the positive sentiment in the long term debt space. Fund managers believe that there is a room for 50-75 bps rate cut in the market. This is positive news for gilt funds. Oil prices have gone up in the last one week based on global factors, but market participants believe that the minor increase in price won't spoil the party.Fund managers advise caution while investing in gilt funds. Some fund managers believe that there is a lot of volatility expected in the long duration segment, including gilt funds. So, retail investors should tread carefully. “If you remember, last year at the same time, gilt funds were offering around 1-2 per cent returns in one year. The tables have turned in no time. Despite the positive factors for the market, there are worries about food inflation and fiscal deficit which can impact the gilt space anytime,” says Pankaj Pathak, fund manager (fixed income), Quantum Mutual Fund “Biggest risk to our view of lower interest rates going forward is from fiscal side. We do not rule out marginal fiscal slippage of 20-30 bps in the final budget but anything more than that will materially change our view on interest rates,” says Naresh Kumar.Fund managers say retail investors who want to reap the benefits of the rally in the bond fund space should invest in dynamic bond funds or short-to-medium duration funds. “Entering gilt funds at this point can be risky for investors. These schemes are highly volatile. If you want to take some risk for returns, better to invest in either short duration funds or dynamic bond funds where your scheme can take some exposure to long duration gilt also,” says Pankaj Pathak.