Are government securities any different from government bonds ?

Introduction 

The fear of aggressive US Federal Reserve policy tightening is on the minds of many people in India. Meanwhile, concerns of domestic inflation going up due to the recent increase in petrol and diesel prices are also felt. 

This has caused yields of 10-year benchmark G-sec to surge by five basis points, i.e., 6.8311% on 22nd March 2022. 

India’s government bond market is enormous, and its size is about $1 trillion. 

Institutional investors dominate the g-sec market. However, after introducing the RBI retail direct scheme, retail participation has climbed.  

Government securities and government bonds are two terms that often get confused by investors. They both refer to debt instruments issued by governments to finance their activities or projects.  

Still, they have a few key differences that are important for an investor to understand.

 

What are government securities? 

Government securities (G-secs) are debt instruments issued and backed by the governments to finance or raise money for various government expenditures. The RBI plays the role of issuing government securities along with the government. They are considered relatively safe investments as they are backed by the issuing government. Further, they also provide steady income and protect against market volatility.  

Government securities include T-bills, government bonds and notes.  

The downside to investing in a G-sec is the relatively lower return, as they carry minimal risk. 

Want to purchase government bonds? check out this.

What are government bonds? 

Government bonds are debt securities issued by a government or public authority and are backed by the full faith of the government. 

The government essentially borrows money from investors to fund a significant project that is expected to pay back, via interest payments, over a while. Government bonds have varying maturities and interest rates.  

G-sec bonds come in various forms, such as fixed-rate bonds, floating-rate bonds, sovereign gold bonds, inflation-indexed bonds, zero-coupon bonds, etc. 

Are government securities any different from government bonds? 

Though government securities and bonds seem similar, they have a few differences; let us check out these differences. 

1. Broader Term   

An essential difference between government securities and government bonds is that government security is a broader term. It includes T-bills, government bonds and notes.  

Treasury bills (T-bills) are short-term money market instruments issued by the government of India to cover its obligations.   

On the other hand, government bonds are a part of government securities and do not include T-bills and notes.  

2. Maturity 

Another difference between government securities and government bonds is maturity. 

As government securities include T-bills, government bonds, and notes, they have varying maturities.  

T-bills have a very short term maturity, i.e., less than one year, and are presently issued by RBI in three tenors, 91 days, 182 days, and 364 days.  

Treasury notes are similar to bonds but have shorter maturity than bonds. 

Conversely, government bonds have a longer maturity, i.e., more than one year.  

3. Issuer  

The last point of difference between the two is the issuer.  

Within government securities, T-bills are only issued by the government of India (central government), and notes can be issued by central, state governments and municipal corporations. 

In contrast, government bonds can be issued by both central and state governments and municipal corporations.  

Conclusion 

There are many investment options available to investors in today’s world, depending on their risk appetite. To choose an appropriate investment, one can first analyse one’s risk profile. This will help them choose an investment option that suits their needs. 

Government securities are among the safest investment options in India, with a relatively lower risk profile. Investors have used government securities (G-sec) to generate regular income and capital appreciation.  

Published by ivankhanna

I am a writer

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: