Types of Government Bonds in India

Admin
March 03, 2023

Government bonds are debt securities issued by the government to borrow money from the public. The Indian government issues various types of bonds to meet its financing requirements. These bonds are considered safe and low-risk investment options as they are backed by the government. In this article, we will discuss the different types of government bonds available in India.

  1. Treasury Bills (T-Bills)

Treasury bills or T-Bills are short-term government bonds that have a maturity period of up to one year. These are issued by the Reserve Bank of India (RBI) on behalf of the government. T-Bills are sold at a discount to the face value and the difference between the face value and the purchase price is the interest earned by the investor. T-Bills are considered safe and low-risk investments as they are backed by the government.

  1. Government Dated Securities (GDS)

Government Dated Securities or GDS are long-term government bonds with a maturity period of more than one year. These bonds are also issued by the RBI on behalf of the government. GDS pay a fixed rate of interest and are considered safe and low-risk investments as they are backed by the government.

  1. State Development Loans (SDLs)

State Development Loans or SDLs are issued by the state governments to meet their financing requirements. These bonds are similar to GDS, but they are issued by the state governments instead of the central government. SDLs have a maturity period of more than one year and pay a fixed rate of interest. SDLs are also considered safe and low-risk investments as they are backed by the respective state governments.

  1. Floating Rate Bonds (FRBs)

Floating Rate Bonds or FRBs are government bonds where the interest rate is not fixed, but it is linked to a benchmark rate such as the Mumbai Interbank Offer Rate (MIBOR) or the Government of India Treasury Bill Yield. The interest rate on FRBs is adjusted periodically, based on changes in the benchmark rate. FRBs have a maturity period of more than one year and are issued by the RBI on behalf of the government.

  1. Inflation-Indexed Bonds (IIBs)

Inflation-Indexed Bonds or IIBs are government bonds where the interest rate is linked to the inflation rate. IIBs provide protection against inflation as the interest rate on these bonds is adjusted periodically based on changes in the inflation rate. IIBs have a maturity period of more than one year and are issued by the RBI on behalf of the government.

Conclusion

Government bonds are considered safe and low-risk investments as they are backed by the government. The different types of government bonds available in India cater to the varying needs of investors. While T-Bills and GDS are suitable for short-term and long-term investments, respectively, SDLs are issued by state governments and FRBs and IIBs provide protection against interest rate and inflation risks, respectively. Investors should assess their investment goals and risk appetite before investing in government bonds. It is advisable to consult a financial advisor before making any investment decisions.