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GROW YOUR MONEY WITH GOVERNMENT BONDS

GOVERNMENT BONDS


The Bonds are the debt instrument provided by the corporate or government to debt holders, creditor and the issuer. The bonds are helpful for providing financial support in spending. The Government Bonds Has Fixed or Floating Interest rate provided half yearly or yearly basis.

The G-SEC (Government Security) is an instrument provided by the central or state government. The Tenor of G Sec ranges from 5 Years to 40 Years.

T-BILLS (Treasury Bills) are the short-term debt instruments provided by the government of India. It is issued in three tenors 1- 91 Days, 2- 182 Days, 3 – 364 Days.

CMBs (Cash Management Bills) are also short-term instruments used for cash flows by the government of India. It has limit less than 91 Days.

There are various Instruments in Government Bonds such as

1-      Fixed Rate Bonds.

2-      Floating Rate Bonds (FRB).

3-      Capital Indexed Bonds.

4-      Inflation indexed Bonds.

5-      Bonds with Calls/Puts Option.

6-      Special Securities.

7-      Strips (separate trading of registered interest and principal of securities).

8-      Saving Taxable Bonds.

9-      Sovereign Gold Bond (SGB).

Currently Government Bonds are offering higher rate of return than fixed deposit rates (5-7%). The interest earned through the bonds are taxable according to various slabs. The Bonds are exempt from wealth tax under the Wealth Tax act 1957.

How to invest in Bonds 

Retail Investor can directly go through the official app for purchase of bonds through NSE goBid (Government Bond Investment Destination)

https://www.nseindiaipo.com/eipodc/rest/login

Also, it can be purchase with your Bank trading account – ICICI Bank Link

-       https://www.icicidirect.com/idirectcontent/ProductService/ProductService.aspx?FDBonds/list-of-bonds

Karvy Value  - https://www.karvyvalue.com/website/top-tax-free-bonds.aspx

Investment in G- SEC

The Government bonds provide a fixed return (interest rate) over a duration of time. G SEC provide maximum safety of capital protection as they carry sovereign’s commitment for payment of interest and repayment of principal.

The Investment in this type of bonds are also risk free as it is regulated and manged by (RBI) Reserve Bank of India.

They are available in wide range from 91 days to 40 years.

It can be sold easily to meet cash liquidly support in the secondary market.

G-SEC provide attractive yields better than Saving account or Fixed Deposit. It also offers Tax Benefits.

The Investment in Government bonds are perfect and risk free for long term investment products.


Explanation on Why Government Bonds are Important.

As per the current situation in the market, saving plays an important role in everybody life as the inflation rises day be day and so the purchasing power decrease day by day. So, in order to grow your money beating the inflation, Investment is necessary. The Bonds providing a 7.75% rate of interest helps to create a stable wealth creation.  The bonds provide a wealth protection over a period of time from a range of 5 to 40 years.

The Bonds Provided a guaranteed income and a higher yield return as compared to PPF, FD and Mutual funds.  There are also other investment options like Equity Mutual Funds which offer a higher return than the bonds i.e. 10-14 %p.a. But in the recent scenario like pandemic covid-19 the market was crashed as the result many Equity Mutual Funds lost nearly 20 to 30 Percent. Most of mutual funds were in negative return. So, at a times the fixed deposit or Bonds are helpful for protecting the Wealth. This is where the Government bonds are needed for investment.

Taxes on Government Bonds –

There is various tax applicable on Government Bonds such as Short-term capital tax and Long-term capital tax (10%,20%). The interest income generated from tax free bonds are tax free, but the capital gains generated from Government bonds are still taxable according to tax slab.

The G-Secs can be held by various means such as Physical Form (stock certificates) and Demat Form (electronic form).

Risks of Holding Government Bonds (G-Secs)

Liquidity RiskThis risk is raised due to the inability of an investor to sell their holdings when there are no buyers for the security. Because there may be a difference in which the security can be bought and sold in the market, that’s why there may be chance of no buyers available in various conditions.

Market Risk - Market risk is due to the sudden movement of prices in the securities which happen to change in the interest rates. There will be a loss of various securities in such conditions in the market.

Reinvestment Risk- Incomes on a G-Sec incorporates a coupon each half year and reimbursement of head at development. These incomes should be reinvested at whatever point they are paid. Subsequently there is a hazard that the financial specialist will most likely be unable to reinvest these returns at yield predominant at the hour of making speculation because of decline in loan costs winning at the hour of receipt of incomes by speculators.

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