Advantages of Owning Indian Government Bonds
Indian government bonds are the most secure and low-risk investment. G-Secs are backed by the full confidence and credit of the Indian government, meaning that you are everything except guaranteed coupon payments and the return of your principal investment upon maturity.
G-Secs are generally traded in demat accounts, which provide a very high level of security for your investment. On the off chance that you need to hold them in the physical form, the government will issue you physical certificates.
With a wide range of maturities available, from 91 days to 40 years, investors can choose G-Secs according to their risk and time horizon requirements.
G-Secs Can Be Used as Collaterals for Loans
G-Secs can be used as collateral against short-term loans and to acquire funds in the repo market.
In repo markets, securities are exchanged for cash with an agreement to repurchase the same securities at a future specified date toward the end of the contract. The difference of amount between the payment for the security at the beginning of the repo contract and the payment received by the buyer at the end of the contract is the return/gain that they make on the transaction.
(Also Read: Municipal Bonds)
G-Secs Trades Settlement is Simple
G-Secs can be sold in the secondary market, where investors can purchase and sell the securities among each other, to meet their cash requirements. The trade settlement system for trading in G-Secs is a system based on a method named Delivery versus Payment (DvP). This is considers as a simple system of settlement of securities.
The manner in which DvP works is that the seller transfers securities simultaneously with the transfer of funds from the buyer of the securities thereby mitigating the settlement risk.
Instructions to Trade G-Sec Government Bonds
There are five different approaches to purchase and sell G-Sec government bonds.
1. G-Secs Auctions through RBI's Electronic Auction Platform
G-Secs auctions are arranged on the RBI's e-Kuber electronic auction platform. Market members like commercial banks, primary dealers, insurance companies and provident funds keep up current account or securities accounts with the RBI, which allow them to participate in electronic auctions.
2. G-Secs Auctions through Commercial Banks
In the event that you don't have access to the e-Kuber platform, don't stress, you can participate in primary auctions through scheduled commercial banks or Primary Members (PMs).
To participate in such an auction, you will have to open a securities account with a bank or a Primary Dealer (PD). This account is called a Gilt Account. A Gilt Account is a dematerialized account that can be opened with a scheduled commercial bank or a PD.
All G-Sec transactions undertaken by Primary Members are settled through accounts maintained by them with RBI. The G-Sec transactions in G-Secs undertaken by gilt account holders by means of PMs are settled through Constituent Subsidiary General Ledger (CSGL) account maintained by PMs with RBI.
3. Purchase G-Secs on the Stock Exchange
BSE's platform BSE Direct allows retail investors to bid for G-Secs. Noncompetitive bidding is additionally permitted by means of BSE's new online bidding platform "NCB-GSec" for collecting bids from members on behalf of their clients.
The National Stock Exchange of India allows retail investors to purchase G-Secs by placing an order through any of the options available under the noncompetitive bidding office offered by the exchange.
4. Purchase G-Secs on a Broking Platform
Stock brokerage platforms, for example, HDFC Securities and Zerodha offer retail investors an alternative to purchase G-Secs directly through their internet trading platforms available on their mobile apps.
5. Purchase G-Secs by means of Mutual Funds
Gilt mutual funds can help investors invest in G-Secs issued by the Government of India. Investors can choose Gilt Funds based on the number of years they need to hold the security and based on the nature: long term or short term.
Some mainstream Gilt Funds available for investors to trade in G-Secs for a period of 1-year include:
Long-term G-Secs
- ICICI Prudential Gilt Fund
- SBI Magnum Gilt Fund
- HDFC Gilt Fund
- Short-term G-Secs
- UTI Overnight Fund
- SBI Magnum Constant Maturity Fund
- IDBI Gilt Fund
Investors in India can hold G-Secs as:
Physical security
Subsidiary General Ledger (SGL) account with the Public Debt Office of RBI.
Constituent SGL accounts with banks who hold G-secs on behalf of the investors in their SGL-II accounts of RBI, meant uniquely for client holdings.
Same demat account can be used for equities at the Depositories. Both NSDL and CDSL hold G-Secs in their SGL-II account of RBI, meant uniquely for client holdings.
(Also Read: Types of Government Bonds in India)
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