BAJAJ BROKING
March 21, 2025
10 mins read
Government securities (G-Secs) are debt instruments issued by the central or state government to raise funds for various public expenditures. They are considered one of the safest investment options as they are backed by the sovereign guarantee of the government. G-Secs are available in different forms, including short-term and long-term securities, catering to the diverse needs of investors.
These securities serve multiple purposes, including financing government projects, managing inflation, and regulating liquidity in the economy. Investors prefer G-Secs due to their stability, regular interest payouts, and lower risk compared to corporate bonds. Additionally, the government ensures their transparency and easy tradability in the financial markets.
The G-Secs market includes both retail and institutional investors, such as banks, mutual funds, insurance companies, and pension funds. With advancements in digital finance, even individual investors can now directly invest in G-Secs through platforms like the RBI Retail Direct Scheme and stock exchanges.
Government securities are financial instruments issued by the government to borrow money from the public or financial institutions. They function as a tool to bridge fiscal deficits and support economic growth while providing investors with a secure avenue to park their funds.
G-Secs come with different tenures, ranging from short-term instruments like Treasury Bills (T-Bills) to long-term bonds like Dated Securities. These securities pay periodic interest (coupon payments) or, in some cases, a lump sum at maturity. The interest rates on government securities depend on market conditions, the tenure of the security, and macroeconomic factors such as inflation and monetary policy.
Additionally, G-Secs play a crucial role in monetary policy implementation, as they help the Reserve Bank of India (RBI) regulate liquidity in the financial system. Through Open Market Operations (OMO), the RBI buys and sells G-Secs to control money supply and interest rates in the economy.
Government securities operate as fixed-income instruments where investors lend money to the government in exchange for periodic interest payments and principal repayment upon maturity. The issuance process typically follows these steps:
Issuance by the Government – The central or state government issues securities to raise funds through auctions conducted by the Reserve Bank of India (RBI). These auctions take place at regular intervals, and participants include banks, financial institutions, and individual investors.
Trading in the Market – Once issued, G-Secs can be traded in the secondary market, allowing investors to buy and sell them before maturity. This provides liquidity and flexibility to investors.
Maturity and Returns – Investors receive interest payments (if applicable) at fixed intervals, and upon maturity, they receive the principal amount. The coupon rates on long-term securities remain fixed, while floating-rate bonds have interest rates that fluctuate based on market benchmarks.
The RBI plays a crucial role in regulating and managing G-Secs to ensure financial stability and liquidity in the economy. Additionally, the introduction of the Retail Direct Scheme has made it easier for small investors to participate in the government securities market directly.
Government securities come in various forms based on tenure, interest payments, and market mechanisms. Some of the major types include:
Treasury Inflation-Protected Securities (TIPS)
These bonds are indexed to inflation to protect investors from declining purchasing power. The principal value adjusts with inflation rates, ensuring real returns remain stable. TIPS are particularly beneficial in high-inflation environments as they safeguard investors' wealth.
State Development Loans (SDLs)
Issued by state governments, SDLs help raise funds for state-level development projects. They offer slightly higher interest rates than central government securities and are considered risk-free due to state backing.
Treasury Bonds
Long-term debt instruments issued by the government with tenures ranging from 10 to 40 years, offering periodic interest payments. Treasury bonds provide stable returns and are ideal for long-term investors seeking predictable income.
Floating Rate Bonds
Unlike fixed-rate bonds, floating rate bonds have interest rates that fluctuate based on market benchmarks such as government bond yields, repo rates, or inflation indices. This adjustment mechanism helps investors mitigate interest rate risks as the returns align with prevailing market conditions.
Cash Management Bills (CMBs)
Cash Management Bills are ultra-short-term securities issued by the government to address temporary mismatches in cash flow. Their maturity period is typically less than 91 days, making them shorter than Treasury Bills (T-Bills). These bills are issued at a discounted price and redeemed at face value, offering returns equivalent to short-term market rates.
Dated Securities (Long-Term G-Secs)
Dated Government Securities (G-Secs) are long-term debt instruments with maturities ranging from 5 to 40 years. They can have fixed or floating interest rates, making them suitable for different types of investors. These securities serve as the backbone of the government’s borrowing program, helping finance large-scale infrastructure projects, public welfare schemes, and budget deficits.
Zero-Coupon Bonds
Zero-coupon bonds are issued at a discount to their face value and do not pay periodic interest (coupon payments) like traditional bonds. Instead, investors earn returns through capital appreciation, as these bonds are redeemed at full face value upon maturity. Since they do not offer regular income, they are ideal for investors looking for lump sum payouts rather than periodic returns.
Capital-Indexed Bonds
Capital-Indexed Bonds are designed to protect investors from inflation by linking both principal and interest payments to an inflation index, such as the Consumer Price Index (CPI) or Wholesale Price Index (WPI). This ensures that the real value of the investment is maintained, even during periods of high inflation. Unlike regular bonds, where inflation erodes purchasing power, these bonds adjust payouts in line with inflation rates.
Savings Bonds
Savings bonds are low-risk debt instruments issued by the government, primarily aimed at retail investors. They offer fixed returns and are considered a safe investment choice for individuals seeking capital preservation over long periods. These bonds typically provide semi-annual interest payments, making them an ideal investment for retirees or risk-averse investors looking for stable income.
Treasury Notes
Treasury Notes (T-Notes) are medium-term government securities with maturities ranging from 2 to 10 years. They offer periodic interest payments (coupons) and serve as a balanced investment option between short-term Treasury Bills (T-Bills) and long-term government bonds.
Trading Government Securities in India
Investors can trade G-Secs through stock exchanges like NSE and BSE, or directly through RBI platforms. The introduction of electronic trading platforms has significantly increased market participation.
Treasury Bills (Short-Term G-Secs)
Short-term instruments with maturities of 91, 182, or 364 days, issued at a discount and redeemed at face value. T-bills are widely used for short-term liquidity management.
Dated Government Securities
Long-term bonds with fixed or floating interest rates, primarily issued by the central government. They cater to investors looking for long-term fixed-income investments.
Eligibility to Purchase Government Securities
Both institutional and retail investors can buy government securities (G-Secs). Eligible investors include banks, financial institutions, insurance companies, mutual funds, corporate entities, and individual investors through RBI Retail Direct. The introduction of digital investment platforms has made it easier for individuals to invest in G-Secs directly.
Process of Trading Government Securities
Government securities are traded through two main markets:
Primary Market – The Reserve Bank of India (RBI) conducts auctions where banks and financial institutions bid to purchase new issuances.
Secondary Market – Investors can trade G-Secs on stock exchanges (NSE, BSE) or over-the-counter (OTC) transactions before maturity.
Steps to Buy Government Securities in India
Open an account on RBI Retail Direct or a registered brokerage platform.
Select the government security based on investment objectives and maturity period.
Place a bid in an RBI auction (primary market) or buy from the secondary market.
Hold the security until maturity for fixed returns or trade in the secondary market for liquidity.
Reasons Banks Invest in Government Securities
Statutory Liquidity Ratio (SLR) Compliance – Banks must hold a portion of deposits in G-Secs to comply with RBI regulations.
Risk-Free Nature – Since G-Secs are backed by the government, they carry minimal credit risk, making them highly secure.
Liquidity Support from RBI – Banks can use G-Secs as collateral to borrow funds from RBI under the repo facility.
Earning Potential from Government Securities
Investors can earn returns through:
Fixed Interest (Coupon) Payments – Periodic interest payments ensure stable income for bondholders.
Capital Gains – Investors can sell securities before maturity at a higher price if market interest rates decline.
Characteristics of Government Securities
Low-Risk Investment – G-Secs are government-backed, making them one of the safest investment options.
Fixed Income Returns – Investors receive regular interest payments, providing predictable earnings.
High Liquidity – G-Secs can be traded on stock exchanges, offering easy exit options for investors.
Regulated by RBI – The RBI governs issuance, trading, and settlement, ensuring a transparent investment process.
Benefits of Investing in Government Securities
Safety and Stability – Since G-Secs are backed by the government, they eliminate credit risk and ensure capital protection.
Portfolio Diversification – G-Secs help investors reduce portfolio risk by adding low-risk assets alongside equities.
Liquidity through Secondary Market Trading – Investors can sell government securities anytime in the secondary market, providing flexibility and liquidity.
While government securities provide low-risk investment options, they are subject to certain tax implications based on the nature of returns. Investors must be aware of taxation on interest income and capital gains when trading or holding G-Secs.
Taxation on Interest Earned
Interest earned from G-Secs is fully taxable under the investor’s income tax slab.
TDS (Tax Deducted at Source) is not applicable on G-Secs, but interest must be reported in the tax return.
Capital Gains Tax on Selling G-Secs
If held for less than three years, gains are taxed as short-term capital gains (STCG) at the applicable income tax rate.
If held for more than three years, gains qualify as long-term capital gains (LTCG), taxed at 20% with indexation benefits.
Exemption under Section 54EC – Investors can reinvest capital gains in specified bonds to avail tax benefits.
Understanding these tax implications helps investors plan their investments efficiently, ensuring tax-optimized returns.
Despite their benefits, government securities also come with certain limitations that investors should consider before investing. While they provide safety, their returns may not always be competitive compared to other asset classes.
Key Limitations:
Lower Returns Compared to Equities – While G-Secs offer stability, their returns are generally lower than stock market investments, limiting capital appreciation potential.
Interest Rate Risk – When interest rates rise, the market value of G-Secs may decline, leading to losses for investors who sell before maturity.
Limited Accessibility for Retail Investors – Although RBI Retail Direct has improved access, direct investments in G-Secs were historically limited to institutional investors.
Long-Term Commitment – Many G-Secs have extended maturity periods (10 to 40 years), making them less suitable for short-term investors.
Inflation Impact – If inflation rises beyond the fixed interest rate of G-Secs, the real return on investment declines.
Government securities and corporate bonds serve similar investment purposes but differ in risk level, returns, liquidity, and tenure. Government securities are issued by the central or state government, making them virtually risk-free due to the sovereign guarantee. On the other hand, corporate bonds are issued by private entities or corporations, meaning their risk levels depend on the creditworthiness of the issuer.
In terms of returns, government securities typically provide fixed but lower interest rates, whereas corporate bonds offer higher potential returns but come with increased credit risk. Liquidity also varies; G-Secs are highly tradable in the secondary market, while corporate bonds may have limited demand depending on the issuer. Additionally, government securities have a wider range of tenures, from short-term T-bills to long-term bonds, while corporate bonds are generally mid- to long-term investments.
Government securities are ideal for conservative investors seeking stability and secure returns, whereas corporate bonds may appeal to investors willing to take moderate risks for higher yields. Understanding these differences allows investors to make informed decisions based on their risk appetite and financial goals.
Government securities are a reliable investment option for those seeking safety and stable returns. They serve as an excellent tool for portfolio diversification and capital preservation. With easy access through digital platforms, retail investors can now participate in the G-Secs market more conveniently.
However, investors should consider interest rate risks, tenure, and tax implications before investing. By carefully analyzing market conditions and investment objectives, individuals can make well-informed decisions regarding government securities.
Do you have a trading account app or demat account app?
You can open an account with Bajaj Broking in minutes.
Download the Bajaj Broking app now from Play Store or App Store.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For All Disclaimers Click Here: https://www.bajajbroking.in/disclaimer
Share this article: 
What is ROCE
21 Mar, 2025 | 8 Min. read
Return on Invested Capital
21 Mar, 2025 | 9 Min. read
Government Securities in India
21 Mar, 2025 | 10 Min. read
Reversal Trading
21 Mar, 2025 | 5 Min. read
Angel Tax Explained
21 Mar, 2025 | 6 Min. read
IPO Lot Size
21 Mar, 2025 | 6 Min. read
Difference Between Cash Flow And Fund Flow
20 Mar, 2025 | 3 Min. read
IPO Application Process for HNI Category Individuals
20 Mar, 2025 | 5 Min. read
Credit Market
20 Mar, 2025 | 6 Min. read
What is IPO Subscription and How to Check It
20 Mar, 2025 | 8 Min. read
What is the Coupon Rate on a Bond & How Do You Calculate It?
20 Mar, 2025 | 5 Min. read
Trading Terminal
20 Mar, 2025 | 6 Min. read
Difference Between Shares and Stocks
September 19, 2024 | 6 mins read
What is Pledging?
January 27, 2023 | 9 Min. read
Is forex trading legal in india in 2024?
January 27, 2023 | 4 Min. read
Intraday Trading Meaning & Overview
October 14, 2024 | 6 Min. read
What is Online Trading?
September 19, 2024 | 6 Min. read
What is Share Market?
August 07, 2022 | 5 Min. read
Difference Between Demat and Trading Account
August 07, 2022 | 3 Min. read
No Data Found
Government securities are issued for various tenures, ranging from short-term instruments like Treasury Bills (91 days, 182 days, 364 days) to long-term bonds such as Dated Government Securities, which can have maturities extending up to 40 years.
Banks invest in government securities primarily to meet their Statutory Liquidity Ratio (SLR) requirements, as mandated by the Reserve Bank of India. Additionally, these investments provide low-risk returns, help in liquidity management, and serve as collateral for borrowing from the RBI.
Register on RBI Retail Direct or through a broker offering G-Sec investments.
Choose the type of government security based on tenure and interest rate preference.
Place a bid in an RBI auction (primary market) or purchase from stock exchanges (secondary market).
Hold the investment till maturity for guaranteed returns or trade it in the secondary market for capital gains.
No, interest earned on government securities is taxable as per the investor’s applicable income tax slab. However, in some cases, capital gains tax may be applicable based on the holding period of the security.
Government bonds are a type of government security, specifically long-term debt instruments. In contrast, government securities include a broader range of instruments like Treasury Bills, Dated Securities, State Development Loans (SDLs), and Floating Rate Bonds.
Yes, individual investors can directly invest in government securities via the RBI Retail Direct platform as well as through stock exchanges (NSE, BSE), mutual funds, and debt ETFs.
Lower returns compared to equities
Interest rate risks (Bond prices fall when interest rates rise)
Liquidity constraints in certain G-Secs
Long maturity periods may not be suitable for short-term investors
The rate of return varies based on tenure and market conditions. Typically:
Treasury Bills (T-Bills): Yield around 5-6% annually
Long-term Government Bonds (Dated Securities): Offer 6-8% returns
Inflation-Protected Bonds (TIPS, Capital Indexed Bonds): Returns vary with inflation adjustments.
Government securities are classified into short-term (Treasury Bills, Cash Management Bills) and long-term (Dated G-Secs, SDLs, Savings Bonds, Zero-Coupon Bonds, etc.). There are also floating rate bonds, inflation-linked securities, and capital-indexed bonds.
Yes, government securities are among the safest investments due to their sovereign guarantee. They provide stable returns, are ideal for risk-averse investors, and serve as an essential tool for portfolio diversification.
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading
TRENDING CALCULATORS AND STOCKS ON BAJAJ BROKING
POPULAR STOCKS: Tata Motors Share Price Infosys Share Price IRFC Share Price SBI Card Share Price Cipla Share Price NBCC Share Price IDFC First Bank Share Price IRCTC Share Price PNB Share Price Zomato Share Price Vodafone Idea Share Price Axis Bank Share Price JSW Steel Share Price Bandhan Bank Share Price SBI Share Price Tata Steel Share Price ONGC Share Price Ashok Leyland Share Price Paytm Share Price Subex Share Price DLF Share Price Reliance Share Price HDFC Bank Share Price Suzlon Share Price IOC Share Price HUL Share Price Asian Paints Share Price Bank Of Baroda Share Price ITC Share Price TCS Share Price HFCL Share Price Icici Bank Share Price Tata Chemicals Share Price CDSI Share Price MRF Share Price Tata Power Share Price Adani Green share price BPCL Share Price Vedanta Share Price Dmart Share Price Hindalco Share Price LIC Share Price SAIL Share Price Adani Port Share Price IEX Share Price Nalco Share Price L&T Share Price Adani Power Share Price BHEL Share Price Bajaj Finance Share Price Canara Bank Share Price Indusind Bank Share Price Gail Share Price Yes Bank Share Price Wipro Share Price Happiest Minds Share Price Coal India Share Price Maruti Share Price Reliance Power Share Price
INDIAN INDICES: Nifty 50 Share Price SENSEX Share Price Nifty Next 50 Share Price BSE100 Share Price Nifty Bank Share Price LRGCAP Share Price Nifty 100 Share Price MIDCAP Share Price Nifty 200 Share Price SMLCAP Share Price Nifty 500 Share Price BSE500 Share Price Nifty Midcap 50 Share Price ALLCAP Share Price NIFTY SMLCAP 50 Share Price BSE200 Share Price India VIX Share Price BSEIPO Share Price
