Government securities, as the name suggests are issued by the government is one of the ways in which it raises money for various purposes running the economy. Mainly purchased by large institutional investors, these can now be easily purchased online by a common man as well.
The "why" of investing in government securities or bonds can be answered by examining the SLR factors.
Government securities or G-Secs are completely safe as these are backed by the government of India, which means that your money is secured by the government and you are guaranteed to get the promised returns.
Liquidity can be a concern when you choose to invest in government securities. This is because their buyers in the secondary markets are mainly large institutional investors like PPF or mutual fund houses that buy them in large lot sizes, making them inaccessible for small retail investors. If you are planning to add government bonds to your portfolio do it with a long-term perspective and then it should not be a problem as you can hold on to the investment till it matures.
However, you need not invest in tenures as long as 10 years. Government securities come a variety of ranges from 1 to 40 years. For example, treasury bills can be bought for tenures less than 1 year.
There is an element of market risk in these as well. For example, the price of the bonds may fall after you buy them, but you can eliminate that risk by holding on to the bonds till they mature, as you will get the face value of the bond, which is the price at which it was issued. If you sell before maturity, you may or may not get more than what you paid for as the sale price will be purely based on the market rate.
Right now, the 'yield', which is the annual returns (like interest) that one gets on their investment, is higher than the interest rates offered by banks on fixed deposits. While 10-year investment in government bonds seem like be a longer tenure than a fixed deposit investment that you would ideally choose, this can be one of the safest long-term investments you can make amid the prevailing non-banking finance company liquidity crisis in the Indian markets. In September, the yield of the 10-year government bonds went as high as 8.2 percent and are presently at around 7.2 percent.
How to invest in government securities?
While one has multiple modes to invest in the equity markets on their own, government securities have been almost inaccessible due to the large share of institutional investment. It is also why most of us never even think of government securities as a safe investment for long-term gains.
Of late, the government has been taking initiatives to increase the number of retail participants in these. While primary issuances of G-Secs that allow prospective buyers to bid through applications to buy a certain number of them at a certain price on a competitive bidding basis have been for institutional buyers, there are non-competitive biddings done for retail investors in GSecs and treasury bills. However, due to lack of awareness, it hasn't taken off. Here are some ways you can buy them online.
- You can buy them through NSE's mobile app and web platform called 'goBID' that allows retail investors to buy government securities ranging from 90 days to 40 years. You need to make a one-time registration and pay through UPI or net banking. Government securities are auctioned almost every week.
- BSE also has its own web-based platform that was launched this month. It is called 'BSE-Direct' and allows non-competitive bidding at G-Sec auctions.
- In the private sector, Zerodha allows its customers to make purchases through their web-based platform as well as a mobile app which is quite user-friendly.
- These platforms do not require you to open a constituent subsidiary general ledger account) with a bank like the old days, your demat account should be sufficient.
Liquidity, is the only factor at present, as there are not enough small retail investors purchasing G-Secs in the secondary markets making selling difficult as there may not be enough buyers in the market when you want to sell them. This scenario should hopefully change in the coming years as investors gather awareness of the digital platforms to make these purchases. Right now you can purchase them on the above said platforms with an intention to hold on to them till maturity.