Why Are Government Bonds Attractive To Investors | How Can Buy Government Bonds In India?

This particular question has generated lot of curiosity among investors and the reason behind is quite obvious. If we see some of the most trendiest keywords on the Google platform then, in personal finance category ‘Government Bond’ is one of those terminologies which has generated relatively good hike. 

What is Government Bond?

Let’s understand the same in a simple way, when government requires cash to complete the infrastructure or national development projects, it offers this debt instrument to general public for the approximate period of five to forty years. In India, it is issued by central and state government. 

Bonds issued by state governments are termed as ‘SDL’ (State Development Loan). It is a debt instrument where government (an issuer) promises the investor to certain rate of return (7% on fixed rate bonds) at the maturity period on the face value of the bond.

Bonds issued by Government of India:

There are mainly two types of government bonds at present with different characteristics.

  • Sovereign Gold Bonds: Instead of investing on physical gold, these bonds are designed in such a way where investors can invest in gold bonds. Government has set the maximum limit to hold these bonds for different categories and its pricing is determined through prices of gold.
  • Floating Rate Government Bonds: The rates on these bonds are subjected to change at specific intervals.
  • 7.75% GOI Saving Bond
  • Fixed Rate Bonds: If is fixed in terms of interest rate of 7% annually and issued by government of India. 
  • Call or Put Option Bond
  • Zero Coupon Bond
  • Inflation Indexed Bonds

After Pandemic, many investors have realized to have safe investment options with reasonably better rate of interest. Fixed deposit has been still on the top chart for traditional Indian investors but, it only gives 4%-6.5% rate of interest depending upon the bank. Thus, investors are searching for the safe and better investment schemes.

As far as safety is concerned, Government Bonds are safer than most of the market based securities or products. Equity, mutual funds, insurance and debts, all have direct effect from the market fluctuations. But government bonds are almost free from market volatility. 

From now, try to understand the safe sides that these bonds offer to the investors at large if they wait till the maturity. 

What are some of Advantages of Government Bond?

  • The issuing authority is government itself and hence it gives immense safety. It is government’s liability to repay these bonds and that’s the reason these bonds are premium choice.
  • It gives investors guaranteed fixed income and that’s also one of the main attractions.
  • These bonds are not affected by inflation or fluctuation of markets.
  • Income from gold bonds is exempted from the tax. That may attract some traditional investors.

What are some of disadvantages of Government Bond? 

  • The income from these bonds is lower.
  • It is a long term investment and that too with low interest rate.

Bond Yield Data (Historic) Past 10 Years / Daily Base sample.
(Note :  Data is for Mere Representation. Don’t Rely on this table.
/ Source : investing(dot)com)

Date 

Price 

High

Open

Low

Variation (%) 

3-Mar-22

6.827

6.856

6.856

6.823

0.19%

2-Mar-22

6.814

6.817

6.799

6.797

0.65%

28-Feb-22

6.77

6.777

6.777

6.749

0.31%

25-Feb-22

6.749

6.77

6.77

6.738

-0.15%

24-Feb-22

6.759

6.784

6.777

6.749

0.30%

23-Feb-22

6.739

6.792

6.792

6.739

-0.15%

22-Feb-22

6.749

6.783

6.783

6.723

0.84%

21-Feb-22

6.693

6.699

6.681

6.667

0.45%

18-Feb-22

6.663

6.686

6.686

6.656

-0.16%

17-Feb-22

6.674

6.714

6.714

6.667

-0.18%

16-Feb-22

6.686

6.707

6.707

6.656

0.19%

15-Feb-22

6.673

6.697

6.664

6.615

0.09%

14-Feb-22

6.667

6.726

6.725

6.66

-0.46%

11-Feb-22

6.698

6.776

6.763

6.698

-0.40%

10-Feb-22

6.725

6.818

6.818

6.688

-1.07%

9-Feb-22

6.798

6.823

6.817

6.784

-0.18%

8-Feb-22

6.81

6.861

6.861

6.804

-1.00%

4-Feb-22

6.879

6.955

6.955

6.869

-0.15%

3-Feb-22

6.889

6.891

6.891

6.859

0.13%

Lowest: 6.615

Highest: 6.955

Average: 6.751

Change %: -0.770

Difference: 0.340

 

 

 

Should you invest in Government Bonds?

  • It is a highly secure investment and hence, somebody with limited or null experience of investment can bet on these bonds. If you want to play it safe and looking for safe place to put hard earned money with some low rate of interest as an income then, this may be a premium scheme for you.
  • It is also for those who want to minimize the risk with their current high end portfolio.
  • It is advised to consider all the external and internal aspects of investments and then only you should go ahead.

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