The term ‘Gilt’ was originated in Britain. Gilt funds are different from bond or other funds as gilt funds invest only in high grade, low risk debt normally government securities. The gilt funds generate returns as per the interest rates and fluctuate with the interest rates. As in the case of common stock, to maximize the returns they are bought at low price and sold at high price.
The amount invested in such funds is generally huge. So, to avoid the cash transaction, a gilt security is sold and other higher yielding security is bought simultaneously. This process is gilt-edged switching.