While stepping into investing in shares and bonds one is scared of the risk factor involved in it. Therefore, all we look for is a way through which we can get the SLR (safety, liquidity, return) of investment. Well on the off chance that you are somebody who feels that it's difficult to go risk-free that too with tax savings benefits. In such case ‘government securities and bonds’ often referred to as G-sec is all you need to know about.
What is a government bond?
Government bonds are debt security issued by both central and state governments to meet their financial needs or in other words to meet fiscal deficit which also prevents the government from increasing tax rate.
These tax free government bonds are generally in the form of Treasury Bills or Dated Government Securities which are issued by the Reserve Bank of India at regular interim and can be purchased by any individual, firms, banks, and institutions.
RBI the apex financial body of India sells the g-sec on behalf of the government through an auction process where the rate of interest is negotiated and settled through competitive and non-competitive bidding made by the investors. The interest rates on government bond in India vary depending on the term of investment. Good government bonds are expected to produce a return of 8 % to 5 %.
Before you think of investing in G-sec, let’s know in detail about the types of government securities available in the market.
Generally, there are two types of government bond Treasury bills and Dated government securities.
Treasury bills or T-bills are short term bonds that come with the maturity of 91 days, 182 days and 365 days. So if you are planning to invest something for short term Treasury bill is a go-to option for you. T-Bills are issued by the central government to meet its quick needs and are offered with a slightly discounted rate than its face value.
Coming to Dated government securities this is issued by both central and state governments and comes under the category of long term securities issued to meet the fiscal deficit of the government. The interest paid in dated government securities is generally referred to as coupons which are a percentage of the face value of the issued share.
Now let’s look at some of the advantages of investing in a government bond.
Government securities and bonds provide buyers with the option of investing in both long and short term investments which one can hold for the time of 1 to 40 years till its maturity. At times it also offers fixed-rate interest which allows you to plan your spending. So investor gets a choice of investing according to their needs and expectations.
The common and oldest way of buying g-sec is through registering with the National Stock Exchange as trading members. The only thing which remains mandatory here is having a Demat account of the investor. But over the years buying G-sec in India has become much quicker and easier. Companies now have opened up avenues like establishing the NSE goBID mobile app which makes use of the digital platforms to do the purchase and sale of G-sec in India.
Here’s the simple method through which you can buy G-sec through NSE goBID app the only required document is a PAN card and Demat account:
Step 1: Sign Up using Existing client of NSE Trading member option if you are already a registered member or select All Resident Individuals if you are a new user.
Step 2: Fill the registration form
Step 3: Place bid select T-Bill/Bond available for selection
Step 4: Make payment from the linked bank account
After this you will start receiving bond and you can trade accordingly.
The best part about buying public sector bonds is they come with zero risk weight and people who look for good returns in the long run while generating regular income at the same time can purchase it fearlessly. And it's like the cherry on the cake for people with maximum tax bracket. It also comes with the benefit of ease of exit where it can anytime be sold to a third party.
If you are someone curious about investing, it not a tough guess to make that till now you must have prepared your mindset to invest in g-sec after knowing about their benefits. So, here’s listing the method of how you can easily buy g-sec in India.
It is only a few years’ backs that small investors couldn’t even think of purchasing a G-sec because it used to be a space for big investors only. But back in 2017, it was made open for small investors as well, so that even a common person can have a good way of investing. So when the government is providing you with good options why not make the best use of it.
We all at some point in time we must have called ourselves a responsible citizen and must be pondering upon ways through which we can contribute something to the nation. So why not choose an economical method to do the same. Investing in G-sec not only benefits you but also the economy of the country. Here’s how you can do it:
Once you start investing in the public sector market you are not only investing smart but also helping the economy at large. It’s very often observed that the government has to borrow funds from other countries even after issuing bonds and securities in the common market. But as there are not enough buyers who are ready to invest. Therefore, the financial need remains unfulfilled enforcing them to borrow it from another source which ultimately increases the liability over the government.
If you are purchasing a public sector bond the money is invested in developmental projects of the country which ultimately leads to the growth and progress of the nation. Also, it’s not always possible for the government to increase tax or print more money because that could lead to an increase in inflation or can cause a scenario of hyperinflation in the country. Just like, what happened with Zimbabwe in the year 2008 when the price of goods went of increasing and the government still kept printing notes worsening the situation in the country.
The fact that our financial needs have increased over time and it has become necessary to look for an additional way of generating income, G-sec gives you a golden opportunity to go smart in investing. As mentioned earlier, being a responsible citizen you also need to keep in mind the economic growth of the country which will benefit your investment in the long run. Many developed economies around the world like the United States and China are progressing because of their smart investors who keep the money flow within the country which not only earns them good returns but also generates employment within the country.
So, Think, invest and benefit.