13 May 2024 | By INDIE
The success of an investment journey relies heavily on the asset allocation strategy followed in the portfolio. Investing in diversified assets plays a crucial role as each asset behaves distinctly under varied market conditions. Different assets include stocks, bonds, real estate, gold, etc.
Investors tend to research more and explore options while investing in riskier assets like equities and real estate. However, debt exposure is also important to build a sound investment portfolio. Government bonds can be one of the best options to consider for debt exposure to your portfolio.
This article helps you understand all about government bonds in India - their types, pros, and cons, and how to invest in government bonds.
Government bonds are the debt instruments issued by the Government of India to finance various infrastructure projects, and developmental works and to meet government expenditures. Reserve Bank of India issues and regulates these bonds. Stock broking feature in INDIE app helps you invest in various securities without any hassles.
There are various types of Government bonds available in India for investment. Here are some of them:
Treasury bills are the debt securities issued by the government for short-term periods with maturity ranging from 91 days, 182 days, and 364 days. Treasury bills are zero-coupon bonds and do not pay any periodic interest. These securities are traded at discounted prices and redeemed at face value on maturity. The difference between the maturity value and the issue price is considered a return to the investor
Sovereign gold bonds are unique debt securities issued by the government that are denominated in grams of gold. SGBs pay a fixed rate of interest on investment on a semi-annual basis. In addition to this, investors also get the capital appreciation benefit during the investment tenure as the investment is linked to the gold price. SGBs come with an eight-year maturity period with an option of early withdrawal after completion of five years.
Date G-Secs are the debt securities issued by the Government of India, typically for the long term, with a maturity tenure ranging from 5 years to 40 years. They are issued at fixed or floating interest rates (coupon rate), payable on a semi-annual basis. These bonds can also be traded in the secondary market.
These are long-term debt securities issued by the State Government to finance their development projects and to manage fiscal deficits. The interest rate and maturity period of these bonds vary from state to state.
These securities issued by the Government of India are linked to the wholesale price index (WPI). IIBs are typically designed to protect against inflation to the investor. Like other government securities, IIBs can also be traded in the secondary market.
You can buy government bonds without hassles through the digital investing app - INDIE.
Also read: Types of investments and how to get started
1. Government bonds provide stability with periodic interest payments that can become a stable income stream
2. Offers safety and security as it is issued by the government
3. Diversifies your investment portfolio and reduces overall portfolio risks
4. Government securities offer liquidity as some of them are instruments for the short term and also can be easily traded in the secondary market.
Also read: Importance of financial stability
There are also certain cons of investing in government bonds.
● Return is relatively lower than other asset classes like equity and real estate as debt securities are low-risk investments.
● Government securities carry inflation and interest rate risk.
To sum up, government securities can be an excellent option to avail debt exposure to your investment portfolio. It is important to make a rational investment decision considering your investment objectives, risk appetite, and time horizon. A well-diversified portfolio can lead to investment success over time.
