…obliged to settle with the “middle-man” Gilt fund that had invested in the GSECs,
not with the individual who wanted exposure to GSECs via the Gilt fund.
The individual holding the units of a Gilt fund,
a. is trusting the guarantee of the sovereign that the Gilt fund invests in.
b. is also trusting the intermediary that has issued these units of Gilt fund.
IMHO, in a relatively well-regulated market, the above (b) is a minimal amount of additional risk. But, the risk is non-zero, however minuscule it might be.
With how easy it has been to directly invest in GSECs/SDLs/T-Bills in recent times,
IMHO there is very little reason# to invest in Gilt funds to get exposure to GSECs,
instead of investing in GSECs directly.
Basically not even a single minute, i.e. invest in a "set it and forget it" mode.