Government securities are tradable instruments which acknowledge the government’s debt obligation. They consist of Government Promissory Notes, Bearer Bonds, Stocks or Bonds held in Bond Ledger Account. They may be in the form of Treasury Bills or Dated Government Securities. These securities are interest bearing dated securities issued by the RBI on behalf of the government of India for raising public loan. The government would use these funds to meet its expenditure requirements, as well as its financial deficit.
These securities are interest bearing securities issued by the RBI on behalf of the government of India, they generally come along with fixed date of maturity which is specified in the securities itself, and hence these are also called as dated governments securities.
There are certain inherent advantages of government securities:
1. They are issued at a fixed face value. (Face value refers to the amount to be returned to the investor upon maturity of the security)
2. The default risk with regards to them is minimal as each of these bonds carries government guarantees.
3. Ample Liquidity as investor can sell the security in the secondary market.
4. Each of these government securities has a specific maturity date and they can be redeemed at face value on maturity.
5. These securities have interest payment on a half yearly basis on face value.
6. There is no tax deducted at source.
7. They can be held in Demat form.
8. Rate of interest and tenor of the security is fixed at the time of issuance and is not subject to change (unless intrinsic to the security like FRBs - Floating Rate Bonds).
9. Redeemed at face value on maturity
10. Maturity ranges from of 2-30 years.
11. Securities qualify as SLR (Statutory Liquidity Ratio) investments (unless otherwise stated).
In today’s volatile economy wherein keeping capital invested with private corporations can no longer be safe due to uncertain market conditions, from an investors perspective it would be far more wiser to invest in government securities. These securities would not only allow steady and secure growth of capital but on a larger perspective help the government achieve the larger goals it has planned for itself and the country at large.
Disclaimer:
1. Views, as are mentioned in the article, are personal views of Author and nothing to link with Co., its Director and Employees.
2. All investments are subject to market risk and you need to consult your financial advisor/consultant before investment
