Government Bonds Are A Fit For Every Portfolio
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Have you ever invested in Government Bonds? The answer is most likely to be in the negative. This is surprising, isn’t it? After all, Government Bonds are the safest investments you can make. However, operationally, it has never been easy for retail investors to invest in Government Bonds. That’s why retail investors have not been able to reap the full benefits of what the Government Bonds have to offer.
This is about to change.
The National Stock Exchange (NSE) has launched an online facility that allows retail investors to invest in Government Bonds and Treasury Bills easily.
What are Government Bonds and Treasury Bills?
The Government of India issues securities with maturities ranging from 91 days to 40 years.
Treasury Bills (or T-Bills) are issued by the Government of India in tenures of 91 days, 182 days and 364 days. You can use treasury bills for short term investments. A 91-day T-bill with face value of Rs 100 will be issued at discount price (say Rs 98). After 91 days, you will get Rs 100.
Dated G-Secs are long maturity Government bonds and the maturity ranges from 5 years to 40 years. The interest is paid on the bonds twice a year on semi-annual basis. At the time of maturity, you get back the Face Value of the bond. You can use G-Secs to generate interest income over the long term.
What are the benefits of investing in Government Bonds?
All the interest and principal payments are guaranteed by the Government of India. Therefore, you don’t have to worry about any default. Government bonds are the safest investment you can make in India, even safer than the bank fixed deposits.
There is something for every pocket. Minimum investment is only Rs 10,000. You can invest up to Rs 2 crore per auction/subscription. If you suddenly need short term funds, you can even take a loan using these bonds as collateral. You get Government securities of varying maturities (91 days to 40 years). You can pick up one that fits your requirement.
If you want to invest Rs 10 lacs for your daughter’s college education that starts after 1 year. You can simply invest the amount in 364-day Treasury bills. After a year, you will get the money, along with returns, in your bank account. You can use the funds for daughter’s education. You could have gone with a bank fixed deposit too. However, the return in T-bills is likely to be higher.
On the other hand, if you want a guaranteed income during retirement for a long term, you can invest in long duration Government Bonds. Let’s say you invest Rs 10 lacs in a fresh issue of 30-year Government Bonds with a coupon of 8% per annum. You will get Rs 40,000 every 6 months for the next 30 years. Even though the interest rates may go up and down in the interim, you will get Rs 40,000 every 6 months for the next 30 years.
You can’t lock in interest rate for a very long duration using bank fixed deposits because fixed deposits are not available for tenures of more than 5-10 years. You open a fixed deposit for 5 years and use interest income to meet your regular expenses. When you try to renew your fixed deposit after 5 years, you may get a much lower rate of interest. For an investor who is dependent on interest income, this is a risk to your finances because your interest income can suddenly go down. You can invest in a long maturity Government Bond to mitigate this risk.
How to purchase the Government Bonds?
Treasury bills and Government are auctioned by the Reserve bank on a regular basis. Retail investors can now purchase bonds in such auctions through non-competitive bidding. In a way, you don’t really have to bid. You simply must enter the amount you want to invest. You get the bonds at the weighted average price of bids by the institutional investors. It is as simple as buying mutual funds.
Recently, National Stock Exchange (NSE) launched a facility NSE goBid to make it easier for retail investors to invest in Government Bonds.
How do you invest in Government Bonds using NSE goBid?
1. Register: Provide basic details (PAN, e-mail, mobile number, demat account, broker details).
2. Place bid- Select T-Bill/Government bond available for subscription. Make online payment.
3. Get the bonds directly in your demat account. The interest from these bonds will be credited directly to your bank account.
NSE has also launched NSE goBid mobile app to make Government bond purchases even easier. The app provides a slew of features:
1. One-Time registration through 24X7 active registration portal
2. Easy-to-use Mobile App
3. Easy order placement and confirmation
4. Convenient payment options via Net Banking and UPI (BHIM, Google Pay, PayTM, PhonePe)
What are you waiting for? If the Government Bonds address a need in your financial plan, NSE goBid has just provided an easy way to execute your plan.
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