All You Need To Know About Government Security

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All You Need To Know About Government Security
Rajat Mishra - 25 June 2019

There are multiple ways in the hands of the government as a means to borrow money for meeting their day-to-day operational finance. But today we well explain you about Government security in all you need to know.

What are Government Securities?

Government Security is a debt instrument in the hand of the government. Govt Security is an instrument issued by the national government as a mean to borrow money. Such securities are short term in nature such as treasury bills and some are long term such as government bonds. Short term securities has original maturity period of less than one year and long term security such as government bonds which has original maturity period of more than one year.

In our country the government issues treasury bills and government bond and some dated securities. While state can only issue only dated securities. As the government issues them there for they are risk free. As a result of low risk the government pay less interest rate.

Who all issue these Securities?

These securities are issued by commercial banks. And also insurance companies issue it. Other participants include co-operative banks, regional rural banks, mutual funds, provident and pension funds. Foreign Portfolio Investors (FPIs) are allowed to participate in the G-Secs market within the quantitative limits prescribed from time to time. Corporates also buy/ sell the G-Secs to manage their overall portfolio.

What are Treasury Bills?

According to the website of the RBI, Treasury Bills or T-Bills are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at maturity. For example, a 91-day Treasury bill of 100/- (face value) may be issued at say 98.20, that is, at a discount of say, 1.80 and would be redeemed at the face value of 100/-. The return to the investors is the difference between the maturity value or the face value (that is 100) and the issue price (for calculation of yield on Treasury Bills

Why should we Invest in G-sec?

Having cash without getting any return is not a good idea. Thus we should invest in G-secs because you get a return in form of coupons (Interest). They carry the maximum safety. And G-secs can be very easily sold in secondary market to meet the cash requirements as well. Besides this, G-Secs are available in a wide range of maturities from 91 days to as long as 40 years to suit the duration of varied liability structure of various institutions.

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