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Investing in Government bonds

What is the interest rate for government bonds and do they have a fixed tenure? How much interest one could yield from the bonds? What is the procedure to buy bonds?

Oct 27, 2015 by Nirmala, Chennai  |   Fixed Income

Investing in Government bonds, also known as Government Securities of G-Secs, is not very popular with retail investors. However, for informed investors Government bonds can be good investment options for different investment needs. There are a large variety of Government bonds with maturities ranging from 3 months to 30 years. You can hold the bonds till maturity or you can sell them prior to maturity in the secondary market. Some Government Bonds have coupons (interest payment) attached, while other bonds are available at a discount and redeemed at face value. For example, you can buy a 91 day Treasury Bill at say Rs 98 based on prevailing price and redeem it at maturity at Rs 100 (face value). You should understand that the price of a Government bond is dynamic and constantly fluctuates based on the demand and supply situation. So the coupon or the interest paid by the bond is not really the effective return on your investment. The return on your investment if you hold the bond till maturity is known as the yield to maturity (YTM). You can find the YTM of different bonds by going to the RBI website. Current YTMs for Government bonds of different maturities range from 7.4% to 7.8%.

You can buy government bonds from designated banks, e.g. HDFC Bank, Axis Bank, Canara Bank, Bank of Baroda, Kotak Mahindra Bank, Citibank, HSBC, Standard Chartered Bank etc or from Primary Dealers like SBI DFHI, PNB Gilts, ICICI Securities etc. Their phone numbers are available on the RBI website.

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