Government Gilts
Gilts or gilt-edged securities are loans made to the Government to help it fund its spending. Much of the national debt is comprised of Gilts, so when the Government needs to 'borrow' more, it simply issues a new tranche.
Gilts provide the investor with interest payments, at either a fixed percentage or a rate linked to inflation. If held to maturity (known as redemption) the government should offer to buy back the debt at the Gilts face value (known as nominal value) and this is normally £100. As such it is generally possible for the investor to calulate the return they will receive and used in this way, Gilts are relatively low risk investments.
Gilts are also traded on the stockmarket and their price can rise or fall depending on what people forcast will happen to interest rates. Broadly speaking, when interest rates rise the value of the Gilt will fall and vice versa. When actively traded Gilts potentially present a riskier proposition than if bought and held to redemption. Many professional investors and fund managers invest part of their portfolio in Gilts because Gilts can help them to spread risk and provide an income.