Who should invest in Government Bonds?
Government bonds are one of the safest investments in India. It is suitable for investors who have low-risk tolerance as they prefer security in their investment. Usually, investing in market-linked instruments, there is the uncertainty of capital appreciation. Hence, they also act as a long term investment option for investors who do not have experience in investing in the stock market. Further, investors can purchase government bonds to dilute the overall market risk in the investment portfolio. Recently, the Government of India has taken several measures to ensure that government securities gain understanding and popularity among retail investors. Moreover, they have also simplified the methods of subscription for retail investors.
For instance, GOI has introduced a system of Non-Competitive Bidding for certain government bonds. Through this facility, market participants can conveniently place their minimum bid online. One can place the minimum bid through selective websites and mobile applications. To conclude, investors who are seeking to dilute/diversify their portfolio can consider investing in government bonds (fixed income instruments). Also, those who are looking to start their venture can park their excess corpus in government bonds.
Bonds
Bonds are debt instruments in which the investor loans money to an entity. The entity borrows money at a fixed interest rate for a specific time duration. Such an entity can be government, banks or corporates. Hence, when the government issues bonds, they are known as government bonds. Furthermore, these investments are known as fixed income investments. Here, in this article, we have covered in detail about government bonds, its types, advantages and disadvantages.
What are Government Bonds?
A government bond is a debt instrument issued by the central and state government of the country to finance their needs and also to regulate the money supply. When the government requires funds for infrastructure development and for financing government spending such bonds are often the answer. Thus, the government will sell bonds to the public, inviting investments. The government will pay back the principal and interest as per the clauses mentioned in the bond at the specified maturity date. The government issues bonds under the supervision of the Reserve Bank of India (RBI).
The RBI issues bonds on behalf of the government of India to finance the fiscal deficit. Over the past few years, the bonds were issued to large market participants like companies, commercial banks and financial institutions. However, in recent years, government bonds have been available to smaller investors like individual investors, co-operative banks etc. Also, individual investors are taking a lot of interest in investing in government bonds. Generally, Government bonds in India are long term investment tools. These bonds are for a long duration ranging from 5 years to 40 years. Also, government bonds fall under the broad category of government securities (G-secs). Both the central and state government can issue government bonds. However, the bonds issued by state governments are also called State Development Loans(SDLs).
The Government of India (GOI) issues different variants of bonds. Also, these bonds cater to the diverse needs of the investor. The interest rate offered on the government bond is known as the coupon rate. The coupon can be either fixed or floating disbursed on a semi-annual basis. Mostly, GOI issues bonds which have fixed coupon rates in the market.
