Investments come with a certain level of risk and indistinguishable nuances. Unlike a few decades ago, today, we have abundant options to invest our money. From fixed deposits to bonds to mutual funds, you have an ocean full of choices that’ll help you grow your money. As people age, they look for safer investment avenues like G-Sec bonds, gold, public provident fund (PPF), national pension schemes, etc. Here, we’ll talk about government security bonds, the issuing process, and a few other aspects.
What are G-Sec Bonds?
Sometimes, the government also needs money to meet its annual fiscal expenses. So, other than banks, they reach out to the public to raise funds by issuing G-Secs. These debt instruments are risk-free and are much better than fixed deposits. The interest rates can be a bit of push and pull or wavering, but if you keep your investment for a long tenure, you can take the edge off capital loss. As these instruments are government-backed, the chances of getting default are rare. G-Sec bonds or government bonds are more liquid in the secondary market than in the primary market. If you plan to make an investment in government bonds, below are a few benefits listed.
- G-Sec bonds offer coupon interests and also guarantee a stable inflow of cash. Plus, the government is held accountable for principal repayment to the investor. It’s the sovereign’s obligation to do so.
- They are highly liquid and can convert into swift cash upon selling them in the secondary market.
- If you want to take a loan in the repo market, you can use government bonds investment as a cover.
- The G-Sec bonds are available in various maturities, i.e., from 91 days to 40 years. So, if you want to invest for the long term and also expect safety, this is an excellent investment avenue to choose.
How to Invest in G-Sec Strips?
Also known as Separate Trading of Registered Interest and Principal of Securities, the G-sec strips investment is ideal for a low/medium risk-taking investor. You don’t require huge money to invest in G-Sec Strips. The principal and interest sections in G-Secs are traded separately in the secondary market. The coupon interest on the government security bonds is converted into individual zero-coupon bonds for trade. The principal is called the principal strips and coupons as coupon strips. You can invest in G-Sec Strips for as low as Rs. 1000.
Process of Issuing G-Secs
G-Sec bonds are also known as government security bonds. The Reserve Bank of India has opened the doors for retail investors to invest in these debt instruments directly via creating GILT accounts. The functioning here is pretty straightforward like every other avenue in the market. You can lend a loan to the government in return for a fixed return on a regular period. You can invest in G-Sec bonds by participating in the weekly auctions managed and administered by the RBI electronically through E-Kuber.
Some of the other participants in the auction are commercial banks, primary dealers, financial corporations, insurance firms, etc. Based on your eligibility criteria, you can partake in the auction bidding. All the G-Sec transactions on GILT accounts get resolved via Constituent Subsidiary General Ledger.
At times, the government buybacks the prevailing G-Sec bonds from the investors to enhance the liquidity in the market. Government security bonds can either be held physically or in electronic form. If you have a demat account, these bonds get stored in your account in digital format. You can sell these in the secondary market whenever you want. There are various online bond trading platforms to buy G-Secs or G-SEC strips.
Money is the driving factor for a business or a project to get going. Like individuals, the government also requires money to cover the budget expenses. That’s how G-Secs were born, a debt instrument attached with a guarantee of safety and sound returns from the government. You can buy these government security bonds directly online on an RBI-established portal called RBI Retail Direct by opening a GILT account. The other way to invest in them is by participating in the bidding conducted by the government. The principal and interest on G-Sec bonds are traded as G-Sec Strips in the secondary market. The minimum investment in G-Sec Strips starts at Rs. 1000.