What should one keep in mind if investing directly in G-Secs?

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Government securities

The investment market for retail investors has been buzzing around the announcement of the availability of government securities (GSecs) via the central banking portals. 

Retail investors can now diversify their investment portfolios by investing in GSecs via NSE goBID and other online platforms offered by public and private banks. Even though these are government-issued bonds and risk-free, there is a catch. Let us take a look.

What are G-Sec or Government securities Bonds?

G-Secs or government securities are government-issued debt papers. These bonds are issued by the Reserve Bank of India (RBI) in accordance with the central or state governments. The concept is similar to that of bonds.

You are lending money to the government in exchange for a return on investment (ROI) by buying such bonds. The issuing authority will assure a return on the principal amount invested. 

The issuing government uses this financial instrument to seek money from public investors in exchange for a fixed return after a specific tenure. Apart from debt bonds, there are specific mutual funds that invest in GSecs.

The two categories of GSecs are:

Categories of Government securities

  • Cash Management Bills (CMBs)

These bills are introduced as a short-term GSec instrument to bridge the gap in cash flow in the treasury of the government. It has a maturity span of 91 days.

  • Short-term instruments or Treasury Bills (T-Bills)

As the name suggests, these GSecs have a shorter tenure in three categories of 91, 182, and 364 days. There is no coupon security for interest payment. These bonds are offered at a discount. When the tenure ends, the face value is offered to the investors.

  • Dated GSecs

These GSecs carry a floating or fixed coupon or interest rate with a specified tenure ranging from 5 to 40 years. The face value at the end of tenure is considered to calculate the interest rate. 

This is how GSec bonds work in India. The government or issuing authority allows investors to buy bonds from particular sources in the form of treasury bills and dated GSecs.

Once the maturity period is over, the interest rate specified in the beginning will calculate the return on the contemporary face value of these bonds. This occurs for long-term bonds. Short-term bonds are offered at a discount and are returned after maturity considering only the face value, not an interest rate.

Can retail investors buy GSecs?

Previously, the GSec investment market was dominated by big or institutional investors such as mutual funds, insurance companies, and banks. On February 5, 2021, RBI announced the disbursal of GSecs to small or retail investors. 

Previously, they had to invest in mutual funds that invested in GSec bonds. Now that RBI is encouraging direct investment, retail investors can place non-competitive bids in different government bond auctions using their demat accounts. The stock exchanges will act as the facilitators and aggregators of such retail bids.

How to buy GSec Bonds online?

As per the latest amendment, retail investors can use NSE’s goBID app and other security portals offered by the private banks to buy GSec bonds. The Government of India has paved a direct channel to invest in Government securities.

Interested investors can choose the public NSE domain or private broking firms to make smaller investments and diversify their portfolios.

Points to consider

Government securities or GSecs are risk-free to a considerable extent but the return varies a lot. The interest or coupon rate varies every year for the dated GSecs. For short-term plans, the face value determines the ROI.

Seek professional assistance for such secured investment plans and enjoy an assured return. These are the things one should keep in mind while investing in GSecs.

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