What are G-Sec bonds?
Every growing entity needs money, and governments are no different. Governments sometimes need to borrow money from different lenders to fulfil their needs relating to governance and infrastructure. While there are many ways to raise this money, government bonds, also known as G-sec bonds, are becoming a popular option. This benefits investors with an opportunity to invest in a government-backed debt security that offers fixed income and comparatively lower risk. Let us learn more about Indian government bonds and explore their features through this article.
How do G-sec bonds work?
As said above, g-sec bonds are a way for the government to raise money and investors to get decent returns. The working of G-sec bonds is similar to that of a regular bond. Here, the money you invest in the bond is the money you are lending the government (or the government authority). For that amount of money, you will continue to receive interest payments till the end of the tenure. Here, the tenure can be different for different bonds. But, at the end of the same, you will also receive the money you invested.
Every G-sec bond has a face value, coupon rate and price. The coupon rate is the interest that the bond gives, while face value is the amount of money you will receive at maturity. This is different from the price of a bond. Most bonds are tradable, and the price refers to the current price at which the bond is sold. This value tends to change continuously and is dependent on the supply and demand theory.
The history of G-sec bonds
Government bonds are a form of public debt. The history of public debt in India is vast and has roots way back in the British ruling era. The government bonds that we see today were first introduced after the economic reforms in 1991. The move was later proved to be revolutionary in helping the country manage debt.
According to the Reserve Bank of India, by the year 2003, debt became one of the most popular options by the governments to raise money, not only in India but also worldwide.
The popularity of G-sec bonds today
Investing in G-sec bonds remains one of the most beneficial options today. Thanks to spreading information through modern communication channels, more and more people are understanding the benefits and choosing to invest in one. But there still exists a gap between a beginner who wants to invest in bonds and buying a bond. The main reason behind this is the complexity. But Scalerich is trying to be the change here. We aim at making bond investments, including in g-sec bonds, easy and simple enough for everyone so that the common in the country can also take advantage of bond investments.
The future of G-sec bonds
Experts believe that the recent economic crisis reminded retail investors about the importance of diversification. But that doesn’t mean you should settle for conservative options that hardly beat inflation.
In this scenario, the importance and bonds become evident. The advantages of investing in G-sec bonds, especially if your desired time horizon is long-term, are often unparalleled.
As our country grows, the government will likely raise more money to support the growth and build an infrastructure for the same. This means opportunities to invest in G-sec bonds are likely to increase. Moreover, with innovations like Scalerich easing bond investments, more investors will likely favour G-sec bonds in the future.
Advantages of investing in G-sec bonds
Investing in a G-sec bond has some advantages. Let us explore some of them.
- The biggest advantage of investing in a bond is the lower risk that comes with it. You can consider a bond as a person borrowing money from you. The trustworthiness of the borrower here is important. Here, when the government is the borrower, the risk of non-repayment becomes low and hence, the lower risk.
- Bond investments are often compared to conservative investment options like fixed deposits. But, if history is to be believed, government bonds tend to give you better returns with about the same level of risk.
- Government bonds also become an excellent option to diversify your portfolio. Diversification is a key element in a successful portfolio. By investing in government bonds, you make sure your capital is protected as well.
- Due to the above-said features, government bonds become a safe place to park your corpus as well, especially since most of these bonds have longer-term tenures.
How to invest in G-sec bonds?
G-sec bonds are sold through exchanges. There will be specific fixed-time windows when you can bid to invest in these bonds. You can bid for Treasury Bills from Monday to Tuesday and for Bonds from Tuesday to Thursday.
You can bid for bonds by logging into the scalerich.com website. We have made the process simple and straightforward – there are no more complicated processes or jargon! As a result, investing in bonds is now simplified.
Bonds are a highly beneficial investment option as they carry lower risk yet give you fixed returns. Follow the above pointers if you are in the market for government securities to get the best out of your investment.