Government Securities, popularly known as G-Sec Bonds, are debt instruments issued by the Central government to meet its fiscal needs. Like any other bond, you essentially lend money to the issuer when you buy it from them. The issuer could be a corporation or the central government. In return, the organisation uses the money to meet their fiscal needs. In the case of the Central government, they can use the money for funding government projects such as boosting infrastructure.
But should you invest in G-Sec Bonds? To answer this question, we should know what G-Sec Bonds are, how they work, and how to invest in them.
What are G-Sec Bonds, and how do they work?
In India, G-Sec Bonds are debt instruments issued by the Reserve Bank of India (RBI). The government sells the bonds and uses the funds to pay for daily projects, special infrastructure, or military operations. In exchange for investing in the bond, the issuer promises to pay back the principal amount on a predetermined day. Additionally, the issuer also pays a special G-Sec interest rate till that day.
The most alluring part of G-Sec Bonds is the fact that their credit risk is negligible. As they are government-backed, there is no chance for them to default on the repayment. G-Sec Bonds can also be traded in the secondary markets, giving investors the flexibility to buy/sell bonds as they see fit.
Some examples of government securities are dated securities, treasury bills (T-Bills), and treasury bonds.
What are some important details you should know about G-Sec Bonds?
Credit Risk: Government securities have negligible credit risk. If a company issues a bond, it is a binding deal, wherein they pay the interest amount and repay the principal. Still, there is a possibility of them running into cash-flow problems and not being able to repay. This is known as credit risk. Government bonds, meanwhile, come with a sovereign guarantee. This means that there is very little to no possibility of the government defaulting on the payment.
Liquidity: These securities are highly liquid, and you can trade them in the secondary market easily.
G-Sec Bond Yield: Bond yield is the return that you get from investing in a bond. The formula for calculating the yields is the annual coupon rate divided by the current market price of the bond. This indicates that there is an inverse relationship between the yield and the price of a bond. When the price of a bond goes up, the yield falls.
How can you invest in G-Sec Bonds?
Using HDFC Securities’ platforms and a Demat Account, you can invest in G-Sec securities in a few clicks. Here are some of the ways you can invest:
- Internet Trading System:
Step 1: Log in to your account.
Step 2: From the top menu, choose ‘IPO/FPO’.
Step 3: Choose the specific bond you want to invest in.
Mobile App: Here, all you have to do is navigate to the IPO section and make an investment.
Call and Trade: You also have the option to call the centralised dealing desk at (Prefix STD Code) 3355 3366 and speak with a tele-broking executive.
G-Sec Bonds are risk-averse, government-backed investments. However, before you invest, know that the price of the bond has an inverse relationship with the yield you get from them.
To learn more about G-Sec Bonds or apply for a Demat Account at HDFC Bank, click here.
Want to read more about DIY investing? Click here to read more.
*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. This is an information communication from HDFC bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.