How To Buy Government Bonds In India?
Government bonds are one of the safest investment avenues in India. Issued by the Central government and supervised by the Reserve Bank of India, this investment instrument involves minimal capital loss risk. State governments can issue such bonds, which are also known as State Development Loans (SDLs). These bonds are primarily issued for financing infrastructure development projects and to plug revenue gaps.
When considering how to buy government bonds in India, prospective investors must be familiar with a few associated formalities and aspects of this investment tool to optimise their benefits. The sections discussed below elaborates on these.
For investors wondering how to buy government bonds, read the steps mentioned below for detailed information –
- A DEMAT account is necessary to buy government bonds. Investors can register themselves on the stock exchange for non-competitive bids. This account will hold all the bonds in an electronic form.
- To buy a government bond, investors will have to provide all the necessary documents such as address proof, PAN card, ID card, Aadhaar card, DEMAT account number, etc.
- Retail investors will have to submit an application form along with all the necessary documents.
- After processing the application, authorities will conduct background verification along with documents submitted.
- Investors will then receive a bond certificate after successful verification.
Advantages Of Buying Government Bonds:
- Regular Source Of Income – Government bonds offer a steady and fixed source of income. Investors receive interest earnings on government bonds every six months as per the RBI mandate.
- Portfolio Diversification – Investing in government bonds is an effective means of diversifying a portfolio. Investors can hedge against market lows easily with this investment instrument since the Central government backs its returns.
- Low Risk – Government bonds involve little risk of loss, unlike stocks. In the case of stocks, investors run the risk of losing out on their entire investment. In this case, one can be assured of receiving the principal upon maturity.
- Tax Benefit – Interest from certain government bonds is not liable for income tax, meaning such bonds are tax-free.
Until November 2017, small investors and individuals could not buy Government Securities such as bonds and T-bills. Only entities like insurance companies, banks, trusts, mutual funds, and corporates could access the G-sec market. But after RBI’s announcement of ‘Non-competitive Bidding Facility,’ G-Secs are now easily available for all.
To know more about how to buy government bonds, individuals can use the NSE goBID app with a minimum value of Rs.10,000.
Government bonds assure maximum financial security along with generating a regular source of income. People who fall in the maximum tax bracket can opt for government bonds, which is a highly profitable option. Investors can also consider investing in corporate bonds via KredX. Other alternatives like PMS and digital gold are also available on our platform.
FAQs on How to Buy Government Bonds:
A. Currently, investors yield 6.126% on government bonds investment for 10 years. To put it simply, investors who hold a government bond for 10 years will receive a return of 6.126% annually. The interest rate keeps fluctuating according to the value of the government’s borrowing programme and the RBI monetary policy. Investors can also buy treasury bills, which come with a maturity period of 365 days or less. These investments offer lower interest due to their short tenure.
A. In a few cases, interest earnings from government bonds are taxable on the slab rate. Certain bonds enjoy tax-free status issued by public sector enterprises such as Housing Development Corporation (HUDCO) or Rural Electrification Corporation (REC). However, yields on tax-free bonds are lower than taxable bonds mostly.
A. Yes, retail investors can buy government bonds. One of the easiest ways to do so is by investing in mutual funds. However, there is an expense ratio involved with this investment that may lower an investor’s return. Apart from government securities (gilt) funds, retail investors can also buy government bonds by registering on the stock exchange for non-competitive bids. There is no third-party or broker involved here, allowing investors to submit their orders via the exchange directly. All they need is a DEMAT account to hold the bonds.
Investing in G-Secs comes with several benefits such as-
- Besides earning interests, G-Secs offer maximum investment safety due to the sovereign commitment to principal repayment and interest returns.
- Investors can choose G-Secs premised on their maturity periods, ranging from 91 days to as long as 40 years, as per their requirement.
- Moreover, G-Secs can be used as collaterals to borrow finance in the repo market.
- It is also easy to sell G-Secs in the secondary markets to mitigate any liquidity crisis.
- Investors buying Special Securities and State Development Loans (SDLs) enjoy more significant yields.
A. Government bonds are virtually zero-risk bonds. However, these investment instruments’ value fluctuates as per interest rate changes, also known as the duration risk, which one should consider when considering how to buy government bonds. Bonds with longer maturity tenure are more price sensitive to interest rate fluctuations. An increase in the interest rate indicates lower bond value and vice versa. However, these price movements will become irrelevant if investors buy the bond and hold it till the maturity period’s end. Another risk involved with purchasing government bonds is that the return on such bonds may not be above the rate of inflation.