The kinds of government securities
- Treasury bills (T-bills) — short-term, 91, 182 or 364 days. Sold at a discount and repaid at face value; the difference is your return.
- Dated securities (G-secs) — central government bonds of 2 to 40 years, paying interest every six months.
- State development loans (SDLs) — bonds of state governments, usually yielding a little more than central G-secs.
- Special kinds: floating rate bonds, inflation-indexed bonds and sovereign gold bonds.
Why people hold them
The central government will not default on rupee debt, so there is practically no credit risk. You can lock in a rate for many years, and they are among the easiest bonds to sell.
The risk you still carry
Prices move opposite to interest rates. If rates rise after you buy, a long G-sec's price can fall noticeably; if rates fall, it rises. Hold to maturity and you get exactly the promised interest and face value.
How to buy
- RBI Retail Direct (rbiretaildirect.org.in) — a free account with the RBI that lets you bid in government auctions (as a non-competitive bidder you get the auction's price) and buy or sell in the secondary market.
- Stock exchanges — through your broker on NSE goBID or BSE Direct.
- Gilt mutual funds — if you prefer a fund that holds many G-secs (see debt mutual funds).
Tax
Interest is taxed at your slab rate. A listed G-sec held for more than 12 months and sold at a gain is taxed at 12.5%. There is no TDS on G-sec interest, so add it to your income yourself.
For general information only, not investment advice or a recommendation. Oxon Fintech is a loan facilitation platform, not a SEBI-registered investment adviser, bank or mutual fund distributor, and does not sell bonds, deposits or funds. Rates and rules are as checked on the date above; confirm with the issuer, bank or fund house before investing. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.