Government Bonds

For risk-averse investors, bonds are an attractive investment tool. Among various types of bonds offered, government bonds are considered to be the least risky as they are backed by sovereign guarantee.

In India, while the Central Government issues treasury bills and government bonds, state governments only issue bonds and dated securities.

Government bonds are investment instruments floated by the government to raise money to finance big-ticket expenditures like infrastructure projects. In India, the government issues these bonds through the Reserve Bank of India (RBI).

Investors can choose to invest in the variety of such tools. Following are the types of government bonds available:

• Sovereign Gold Bonds (SGBs)

Sovereign Gold Bonds, or SGBs, are linked with the price of gold and eliminate the need to hold physical gold for investment in this hard asset. They also offer an  interest rate of 2.50% p.a. This allows investors to benefit from the value appreciation of gold as well as the accrued interest.

• Fixed Rate Bonds

Also known as coupon bonds, these government securities have a fixed interest rate that is determined at the time of issuance. The bonds can have a maturity period ranging from 5 to 40 years, during which the government bonds’ rates remain constant.

• PSU Bonds

PSU bonds, as its name suggests, are issued by the Public Sector Undertakings (PSU), companies with majority shares in the hands of the government. These are medium-to-long-term debt securities that are most suitable for high-tax-paying investors.

• Zero-Coupon Bonds

Zero-coupon bonds are those government bonds that do not offer any interest. The income in these bonds can be generated through the price difference from the time of purchase to the redemption. 

• Inflation Indexed Bonds

Inflation Indexed Bonds are inflation-linked government securities. The value of these bonds corresponds to the inflation rate. For instance, if inflation rates are high, the value of these debt securities rises, and vice versa.

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