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Government Bonds

A government bond is a debt instrument issued by the Central and State Governments of India. Issuance of such bonds occur when the issuing body (Central or State governments) faces a liquidity crisis and requires funds for the purpose of infrastructure development.
Government bond in India is essentially a contract between the issuer and the investor, wherein the issuer guarantees interest earnings on the face value of bonds held by investors along with repayment of the principal value on a stipulated date.
Government Bonds India, fall under the broad category of government securities (G-Sec) and are primarily long term investment tools issued for periods ranging from 5 to 40 years. It can be issued by both Central and State governments of India. Government bonds issued by State Governments are also called State Development Loans (SDLs).
Initially, most G-Secs were issued for the purpose of large investors, such as companies and commercial banks. However, eventually, GOI made government securities available to smaller investors such as individual investors, co-operative banks, etc.
There are multiple variants of bonds issued by GOI and State Governments which cater to the various investment objectives of investors. The Government Bond interest rates, also called a coupon, can either be fixed or floating and disbursed on a semi-annual basis. In most cases, GOI issues bonds at a fixed coupon rate in the market.

Who Should Invest in Government Bonds?

Government Bonds are one of the most secure forms of investment in India attributed to its Sovereign guarantee. Risk-averse investors who prefer superlative security of their investments devoid of uncertainty created present in market-linked instruments can look to invest in this type of securities. It is also a suitable long term investment option for entities that do not have experience in investing in stock market tools.
Individuals seeking to dilute the risk factor in their overall investment portfolio while also ascertaining higher than average returns on their investments can allocate a stipulated portion of their corpus for investment in Government Bonds as well.
The Indian government has undertaken several measures to ensure that G- Secs gain understanding and popularity among retail investors at the same time simplifying methods of subscription for retail investors.
The Indian government has undertaken several measures to eFor instance, it has introduced the system of Non-Competitive Bidding for certain G-Secs, including Government Bonds. Through the facility of NCB or Non-Competitive Bidding, investors can conveniently bid and invest through select websites and mobile applications provided they have a functional Demat account.nsure that G- Secs gain understanding and popularity among retail investors at the same time simplifying methods of subscription for retail investors.
Hence, entities seeking to dilute or diversify their investment portfolio or starting their venture as investors can consider investing in government bonds, the excess corpus they have.

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