There are many types of investors. Some prefer high-risk-high-reward investments, while others are more comfortable investing in low-risk, fixed-income investment options. There are many options for investors who prefer government securities. These securities are extremely risk-free and offer guaranteed income or returns. There are many types of government securities that can be purchased in India's financial markets for risk-averse investors looking for low-risk investments.
G-Secs, or government securities, are debt instruments that are issued by governments. These securities can be issued both by the Indian central government and state governments. You generally get a steady income from these options if you invest in them. These investment products are almost entirely backed by government so there is very little risk.
What are the various types of government securities?
There are many options for Indian government securities to invest in if you are interested in low-risk products. You can categorize them into four types: Treasury Bills (Tbills), Cash Management Bills(CMBs), dated GSecs and State Development Loanss (SDLs).
Treasury Bills (T-bills).
The central government of India is the only one that issues Treasury bills, or T-bills. These are short-term money markets instruments and have a maturity period of less than one year. There are three maturity periods for Treasury bills currently available: 91, 182 and 364 days. T-bills offer a unique alternative to other types of investment products on the financial market.
Many financial instruments offer interest. The Treasury bill is, however, what is more commonly known as zero coupon securities. These securities don't pay interest on your investment. They are issued at a discount, and can be redeemed at face price on the date of maturity. A T-bill of 182 days with a face worth Rs. 100 may be available at Rs. 100 may be issued at Rs. 4 and can be redeemed at Rs. 100
Cash Management Bills (CMBs)
The Indian financial market is relatively new to Cash Management Bills (CMBs). The Reserve Bank of India and India's government introduced them in 2010. CMBs, which are zero-coupon securities, are very similar to Treasury bonds. The only difference between these types of government securities is their maturity periods. Cash Management Bills (CMBs), which are issued for maturities less than 91 days, make them an extremely short-term investment choice. The government of India strategically uses CMBs to meet its cash flow needs. The Cash Management Bills are a way for investors to achieve short-term goals.
G-Secs that are dated are another type of Indian government securities. G-Secs offer a wider range of tenures than T-bills or CMBs. They can be used for long-term money market instruments, ranging from 5 to 40 years. These instruments can be purchased with either a fixed interest rate or a floating rate (also known as the coupon rate). The coupon rate is calculated on the face amount of your investment. It is paid on a half-yearly basis, as interest.
The government of India currently issues 9 types of G-Secs. These are listed below.
- Fixed Rate Bonds
- Floating Rate Bonds
Capital Indexed Bonds
- Inflation Indexed Bonds
- Bonds with call/put options
- Sovereign Gold Bonds
2018 - 75% Taxable Savings on Bonds
State Development Loans HTML4_ HTML5_ HTML5_ HTML6_ HTML7_ HTML8_ HTML5_ HTML6_ HTML5_
SDLs, as the name suggests, are only issued by Indian state governments to finance their activities and meet their budgetary requirements. These securities are very similar in appearance to dated Gsecs. These securities support the same repayment options and offer a variety of investment tenures. Only the difference between dated G-Secs (and SDLs) is that the former are issued by the central government and the latter by the Indian state governments.
There are many types of Indian government securities. It's easy for you to find the right product for your portfolio. You can choose the product that best suits your investment timeline, as the investment tenure is a key difference between these GSEcs. Investing in government securities will not only guarantee income or returns but also help you to balance the risk in your investment portfolio.