Aug 11, 2009

Are You Looking For an Investment with Good & Guaranteed Returns...? Invest in Government securities.

Posted By - Research Team- On-10/08/09
Government Securities India
Government Securities are securities issued by the Government for raising a public loan. They are a major means of financing Government deficits. It consists of Government Promissory Notes, Bearer Bonds, Stocks or Bonds held in Bond Ledger Account. They may be in the form of Treasury Bills or Dated Government Securities. Government finances its operations largely through taxation and levies. In cases where revenue received from taxation and levies is not enough to meet the expenditure, the government finances the difference (deficit) mainly through borrowing from public by issuing government securities. Thus, government securities are primarily issued for financing part of government expenditure, usually part of the capital expenditure.  
Mostly Government Securities are interest bearing dated securities issued by RBI on behalf of the Government of India (GOI). GOI uses these funds to meet its expenditures. These securities are generally fixed maturity and fixed coupon securities carrying semi-annual coupon interest. Since the date of maturity is specified in the securities, these are known as dated Government securities, For instance, 8.5% GOI 2018 is a Central Government security maturing in 2018, which carries a coupon of 8.5% payable half yearly. G-Secs are normally issued in dematerialized form (SGL) but it can also issue in the physical form on request. When issued in physical form or otherwise, they are issued in the multiples of Rs. 10,000/- The tenor of these instruments can extend upto 30 years.
Features of Government Securities
Following are the major features of Government securities;
1.    Issued at face value
2.    No default risk as the securities carry sovereign guarantee.
3.    Sufficient liquidity as the investor can sell the security in the secondary market
4.    Interest payment on a half yearly basis on face value
5.    No Tax Deducted at Source (TDS)
6.    Can be held in D-mat form.
7.    Rate of interest and tenor of the security is fixed at the time of issuance and is not     subject to change (unless intrinsic to the security like FRBs).
8.    Redeemed at face value on maturity
9.    Maturity ranges from of 2-30 years.
10. Securities qualify as SLR investments (unless otherwise stated).

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