What is a government bond?
A government bond is a debt instrument issued with an objective of raising funds to finance ongoing or upcoming government projects. It is a risk-free instrument issued by Reserve Bank of India on behalf of the Central and State Governments of India.
- The Reserve Bank of India (RBI) supervises the issue of government bonds.
- Earlier the government bonds subscribed by the institutional investors like commercial banks, RRB, Cooperative Banks, PF & Charitable Trust, corporates, and other financial institutions.
- Presently, the RBI has simplified the process for individuals to participants in investments of G Sec.
- In India, the government bonds are a long-term investment instrument available for investment from 1 year to 40 years.
- State Development Loans (SDLs) are the Government bonds issued by state Governments.
- The coupon rate here is the rate of interest which will get on halfyearly basis on these government bonds.
7 Advantages of Investing in Government Bonds in India
- Government securities are considered as the safest investment option in the category of bond investment with highest rating thus risk-free.
- It is also known as fixed income investment.
- In the case of government bonds an investor doesn’t need to analyse credit rating as its enjoy highest rating i.e ‘sovereign’ which means highest safety.
- There is no default risk by the Indian government.
- The coupon rate (interest rate) is paid on a semi-annual basis. It proves to be a regular income for an investor.
- It is also good for portfolio diversification.
- Government Bonds provides the advantage of liquidity where an investor is free to buy or sell government bonds unlike equity instruments.
Thus, the many good reasons make Government Bonds in India comparatively safe and fixed income instruments beneficial also for the retail investors.