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you can invest in government bonds

you can invest in government bonds

RBI has created routes to get into government securities
finance
July 24, 2021
2 min read
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you can invest in government bonds

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you can invest in government bonds

what if there was an option to invest and trade in the equivalent of US government securities but in India? 

India is finally giving retail investors access to trade government securities (G-Secs). in February, the Reserve Bank of India (RBI) liberalised its policy and gave people an entry to this new asset class through an instrument called RBI direct. 

what are G-Secs?

G-Secs are a debt paper issued by the RBI on behalf of the central or state governments of India. these bonds, also called gilts, are issued when the government needs money and institutions such as banks, debt funds and insurance companies purchase these papers. as these bonds are issued by central and state governments, they come with a sovereign guarantee and hence are looked at as safe haven investments with virtually no credit risk attached to them.

the first time ever?

this is not to say that Indian investors didn’t have access to government securities before. earlier, retail investors could get indirect exposure to G-secs such as treasury bills and dated securities through mutual funds and employee provident funds. there was a way to get direct exposure as well, but there were caveats. investors were asked to hold the bonds until maturity. but now, investors can trade those bonds even before maturity.

what's in it for the investors?

G-Secs can be viewed as a good retirement investment, as these are long-term fixed-income instruments. while we have public provident funds (PPFs) which have a maturity period of 15 years and fixed deposits with a maximum tenure of 10 years, pensioners can buy 30-year G-Secs.

 

while G-Secs are vulnerable to liquidity and interest rate risks, the risk of default is nearly zero. and if investors are patient enough to hold the bond till maturity, they can neutralize the interest rate risk as well.

the question to ask then is: are you ready for a 30-year investment plan?