Government bonds, also known as sovereign
bonds or treasuries, are debt securities
issued by a national government to raise
funds for various public spending needs.
When an individual invests in government
bonds, they are lending money to the
government in exchange for regular interest
payments (coupon payments) over a
specified period, and the return of the
principal amount at the bond's maturity.
Governments issue different types of bonds
with varying maturities. For example,
Treasury Bills (T-Bills) are short-term
government bonds with maturities of up to
one year, while Government of India Bonds
(G-Secs) in India have maturities ranging
from 2 to 30 years.
Here are different ways to buy Government
Bonds in India:
Primary Auctions: When the government
issues new bonds, it conducts primary
auctions where it sells these bonds directly
to investors. Investors can participate in
these auctions through various channels,
including:
a. Banks: Most banks in India offer the facility
to buy government bonds for their
customers. You can approach your bank
branch or use their online platform to place a
bid in the primary auction.
b. Primary Dealers (PDs): Primary Dealers are
financial institutions authorized by the
Reserve Bank of India (RBI) to participate
directly in government securities auctions.
They act as market makers and underwriters
for government bonds. Retail investors can
also approach these PDs to submit bids in the
primary auctions.
c. National Stock Exchange (NSE) and
Bombay Stock Exchange (BSE): Retail
investors can participate in the primary
auctions through the NSE and BSE platforms.
They need to have a trading account with
registered broker and follow the auction
bidding process.
Secondary Market: After the primary
issuance, government bonds become
available for trading in the secondary market.
The secondary market provides a platform
for investors to buy and sell bonds that have
already been issued. Here is how you can buy
government bonds in the secondary market:
a. Stock Exchanges: Government bonds are
listed on stock exchanges like NSE and BSE.
Investors can place buy orders through their
trading accounts with registered brokers.
b. Electronic Trading Platforms: Some banks and
financial institutions offer online platforms where
you can buy government bonds in the secondary
market.
C. Bond Funds/GILT Mutual funds: Another way to
invest in government bonds is by investing in Bond
funds or mutual funds that primarily holds Govt
Bonds in their portfolio. This allows you to invest in
a diversified bond portfolio managed by
professional fund managers.
Direct retail framework allows individuals to directly
participate in the primary market auctions for Govt.
securities.
Some popular securities available for
investment in India:
Government of India Bonds (G-Secs): These
are long-term government bonds issued by
the Central Government of India. They are
considered safe investments with maturities
ranging 91 days to as long as 40years. G-
Secs offer fixed interest payments and
repayment of the principal amount at
maturity.
Treasury Bills (T-Bills): T-Bills are short-term
government securities with maturities of up
to 364 days. They are issued at a discount to
their face value and do not pay periodic
interest like traditional bonds. The returns
the difference between the discounted price
and the face value.
Sovereign Gold Bonds (SGBs): These are
government securities denominated in grams
of gold. SGBs offer investors an opportunity
to invest in gold without holding physical
gold. They come with fixed interest
payments, and the principal amount is linked
to the prevailing market price of gold.
State Development Loans (SDLs): Individual
state governments issue SDLs to finance
their development projects. These bonds
carry the backing of the respective state
government and come with different
maturities and interest rates.
Floating Rate Savings Bonds (FRSBs): These
are bonds with a variable interest rate that is
linked to the prevailing market rates. They
offer investors protection against interest
rate fluctuations.
Fixed-Rate Savings Bonds (Taxable): These
are fixed-rate bonds with a specified tenure
and interest rate. They are taxable, and the
interest earned is added to the investor's
taxable income.
Retail Direct Gilt Account: The Reserve Bank
of India's (RBI) "Retail Direct" platform allows
individual investors to directly invest in
government securities in primary auctions,
making it more accessible for retail investors.
Capital Gain Bonds: These bonds are issued by
specified entities and investing in them can provide
tax benefits under Section 54EC of the Income Tax
Act. The capital gains arising from the sale of assets
like property can be invested in these bonds to save
on taxes.
