A bond is a debt instrument through which an entity borrows funds from an investor on a variable or fixed rate of interest. Issuers of the bonds can be private companies, municipalities, or governments. Buyers are institutional and retail investors. Bonds help in the diversification of an investment portfolio and the management of risks. Since they offer assured returns and are less volatile, they are safer than instruments like equity.
What are government bonds?
Bonds issued by central or various state governments of India are called government bond. Their maturity ranges from less than 1 (T-bills) to 40 years (G-secs). Bonds issued by the state governments are called state development loans.
The G-sec market in India initially consisted of only large institutional investors. The government and RBI are making efforts to increase the participation of smaller entities like cooperative banks and individual investors through various legal and technological developments.
Government bond are available in several variants which cater to different investment requirements like variable and fixed-rate bonds, sovereign gold bonds, and inflation-indexed bonds.
Is investing in government bonds a good idea?
Government bonds are issued by the government to raise funds for its spending activities. Since they consist of the sovereign’s commitment, they offer maximum safety. Investing in government bond in India is an excellent option for risk-averse investors. They are inelastic to market volatility and are great instruments for portfolio diversification.
The government has undertaken several efforts to make investing in government bonds more seamless and increase the subscription of individual investors. For instance, non-competitive bidding was launched to facilitate bidding by retail investors. Similarly, the RBI Retail Direct Scheme has come into existence to attract more retail investors.
Fixed deposits are losing their attractiveness for their low-interest rates, stock investments are highly risky, and gold has problems relating to custody, valuation, and purity. On the other hand, government bond are gaining popularity due to various reasons discussed below.
5 Benefits of investing in government bonds
Investing in government bonds has the following advantages:
1. Low risks and assured returns due to sovereign guarantee. As the government is the issuer of government bonds, they are considered to offer maximum safety.
2. Certain variants of government bonds like Capital indexed bonds and Inflation-indexed bonds offer a way to hedge against inflation. While the principal amount in capital indexed bonds is inflation-protected, both coupon flows and the principal are inflation-protected with inflation-indexed bonds. Hence, government bonds offer protection against capital loss due to inflation.
3. Government bond can be traded in the secondary market. Hence, they are liquid instruments.
4. They can be held in Demat form and bought/sold online. Trading of government bond is done through an efficient delivery system that functions on a delivery versus payment mechanism.
5. They are a great source of earning regular and assured income. Coupon payments on government bonds are disbursed every six months.
How can individuals buy government bonds online in India?
Stock exchanges have dedicated segments for trading in government bond like BSE direct and NSE goBID under the non-competitive bidding mechanism. Transactions are settled on the Subsidiary General Ledger account of the stock exchange and then transferred to the retail investor’s Demat account. Under the RBI retail direct scheme, retail investors can directly invest in government bond by opening a Retail Direct Gilt (RDG) account. The platform serves as a full-service solution for trading government bonds in both primary and secondary markets. Moreover, investors can also choose to invest in government bond through online stock brokerage platforms like Zerodha or online trading platforms like BondsIndia.com that are specifically dedicated to fixed income instruments.
List of GOI Government bonds for investment
The nomenclature of a G-sec consists of the coupon rate (8.20%), GS (G-sec), and year of maturity (2022).
| 8.20% GS 2022 | 6.97% GS 2026 | 7.62% GS 2039 |
| 8.35% GS 2022 | 8.26% GS 2027 | 8.30% GS 2040 |
| 8.15% GS 2022 | 8.60% GS 2028 | 8.83% GS 2041 |
| 8.08% GS 2022 | 6.79% GS 2029 | 8.17% GS 2044 |
| 8.13% GS 2022 | 7.88% GS 2030 | 8.13% GS 2045 |
| 7.37% GS 2023 | 9.20% GS 2030 | 8.13% GS 2045 |
| 7.16% GS 2023 | 6.68% GS 2031 | 7.06% GS 2046 |
| 7.68% GS 2023 | 6.54% GS 2032 | 7.16% GS 2050 |
| 7.32% GS 2024 | 8.32% GS 2032 | 6.67% GS 2050 |
| 9.15% GS 2024 | 8.33% GS 2032 | 6.62% GS 2051 |
| 7.72% GS 2025 | 6.64% GS 2035 | 7.72% GS 2055 |
| 8.20% GS 2025 | 7.40% GS 2035 | 7.63% GS 2059 |
| 8.15% GS 2026 | 8.33% GS 2036 | 7.19% GS 2060 |
| 7.27% GS 2026 | 8.33% GS 2036 | 6.80% GS 2060 |