Key Characteristics of Government Securities
Government Securities are Characterised by the Following Things:
- Fixed maturity: Government securities have a specific maturity date, indicating when the principal amount will be repaid to investors.
- Fixed payments: Government securities offer fixed interest payments, known as coupon payments, at regular intervals until maturity. The interest rate is established at the time of issuance and remains the same until the specific maturity date.
Types of Govt Securities
Here are some common Government Securities:
- Treasury Bills (T-Bills): These are short-term debt instruments issued by the government, maturing from a few days to one year. These securities don't offer periodic interest. The investor gets the principal and interest upon maturity.
- Treasury Notes (T-Notes): T-Notes are medium-term securities with tenure ranging from 2 to 10 years. They pay semi-annual interest at a fixed rate.
- Treasury Bonds (T-Bonds): These long-term debt instruments have maturities over 10 years, even up to 30 years. Like T-Notes, they pay semi-annual interest at a fixed rate.
- Cash Management Bills (CMBs): These bills are issued on an ad-hoc basis to meet short-term cash needs. They have a maturity period ranging from a few days to three months. They are issued at a discount price and can be redeemed at face value upon maturity. In other words, no interest is paid to investors. However, the investors gain the difference between the discounted price at which the bills are issued and the face value at which they are redeemed.
- State Development Loans: These loans are issued by the State Governments. Investors get interest at half-yearly intervals and the principal amount is repaid on the maturity date.
- Zero-Coupon Bonds: These bonds are also called accrual bonds. Investors do not get interest during its term. As they are initially sold at a significant discount, investors gain when these bonds are redeemed at their full face value upon maturity.
- Savings bonds: Saving bonds are affordable Government-backed securities. They offer fixed rates and stability and have often low- investment requirements.
Investment Considerations for the Government Securities
In India, there are several Government securities catering to different investor preferences and risk appetites. Although Government securities are low-risk, investors should keep in mind factors such as risk profile, tenure, inflation, tax implications, market conditions and credit ratings when investing in Government securities. Doing so will help investors to achieve their financial goals while managing risks effectively.