What Is Government Securities?

Government securities or G-Secs in the world of investment are a tradeable instrument that is acknowledged by the government which helps in raising capital from the market. 

 

Types of Government Securities:

There are majorly two types of G-secs:

1. Treasury Bills (T-bills)

2. Long Dated Bonds (Bonds)

These instruments basically are a loan that the government of India borrows from the RBI, you lend money to the government and RBI pays interest for the same until they provide you with the principal amount by the end of the tenure.

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T-Bills or Treasury Bills

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T-bills have a maturity of less than a year; with three maturity periods of 91, 182 or 364 days. These bills are issued at discounted price at par and at the end of the tenure you will receive the actual value. So what do you exactly get from T-bills? You gain the amount of price difference from these instruments of investments. For instance, if the true value of your treasury bills of 91-days is a 100 which you issued at a discounted price at 90 then at the end of your tenure you will redeem the full 100.

 

Bonds

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Government Bonds have a longer maturity period of more than a year which is why they are also called Long term G-Secs. Long term G-secs are purchased at discount, premium or actual price. In case of bonds you get paid for the interest twice a year. So for instance, you have purchased 500 bonds of 100 at a discounted price of 98 for 5 years. You will receive interest every 6 months for 5 years and at the end of your tenure you will receive the principal amount at actual price and you’d have earned a handsome amount out of your investment, more than T-bills.

 

How To Invest In G-Secs?

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Government securities are the safest instrument and a substantial investment option that yields more benefits than any bank fixed deposits. Only authorised primary dealers are allowed to issue G-secs from the RBI and intermediaries like us are allowed to sell it to retail and corporate clients. Based on the RBI guidelines, the auction or the bidding for government securities in India happen for Treasury bills (Monday & Tuesday) and Bonds (Tuesday to Thursday). 

Once successful allotment of government securities is done on your Demat account. If the bonds are issued at a discounted price, you will get the difference in your bank account. All the interests will be credited to your bank account on a regular interval. The interest credited can be monthly, quarterly, semi-annually or yearly. 

 

How To Exit?

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G-secs work just like any other equity products. You can very much trade your long term bonds in the secondary market if you wish to exit, but in case of trade bills you will have to wait until the maturity to sell them. 

 

Advantages Of Investing In Government Securities

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1. Risk-Free: India’s safest and risk-free instrument for investment & gives you a guaranteed ROI.

2. Liquidity: Government securities are liquid instruments that can be sold like any other equity products.

3. Lock-in Interest Rate: In the case of long term bonds you can enjoy the lock-in interest for a long time; which doesn’t fit right if we speak about bank deposits since it only has a maximum tenure of 10 years.

4. Avail Loan: One can use bonds as a guarantee to take loans.

5. No Tax Deducted at Source: The interest paid on a regular interval falls under other incomes because of which one gets the benefit of no TDS.

6. Diversifies Your Investment Portfolio: Since G-secs are completely risk-free, your portfolio becomes diverse and it balances or rather reduces the burden of risk. Other investment instruments including bank fixed deposits aren’t completely risk free.

7. Tax-free: You can invest in government securities that are tax free in nature.