What is the Procedure to buy Government Bonds?

18 Nov 2021|

1 min read |

by ICICI Securities Team

Introduction

Government Bonds are a secure form of investment that comes with fixed and floating interest rates and a fixed tenure. The interest gets paid semi-annually or annually, and you receive the face value of the investment when the term ends. The Bond is secured by collateral and is the first choice of investors with a low-risk appetite and enjoy passive income as interest. The government issues Bonds when it needs funds, and you can easily buy them from the market.

The current yield for Government Bonds for 10 years tenure is 6.126%, which means holding the Bond for 10 years provides decent returns. It fluctuates based on the size of the borrowing program of the government. You also find Government Bonds that have shorter tenures but come with lower yields. Besides, you can buy the Government Savings Bonds that have a floating interest rate linked to the National Savings Certificate, and the rate is 7.15%. It gets revised every six months. You can buy the Bonds through designated banks like HDFC Bank, Axis Bank, SBI, ICICI Bank.

How do you buy Government bonds?

There are two ways retail investors can purchase Government Bonds:

GILT Mutual Funds

The most common way to purchase them is the Government Securities Mutual Funds or GILT. When you invest in Mutual Funds, you need to pay an expense ratio, which reduces the return to some extent. The Mutual Funds invests in GOI Bonds. Investing in Mutual Funds helps diversify the portfolio.

Direct Investment

If you do not want to invest in Mutual Funds and invest in the Bonds directly, you need a Trading and Demat Account with the bank. You can register yourself on the stock exchange for the bids. There is no need for you to look for a stockbroker here. You can submit the order on the exchange and buy the Bonds, later holding them in the Demat Account.

Alternatively, you can buy Government Bonds through the stockbroker. For this, you need to participate through non-competitive bidding. But in this case, the yield gets decided based on the bids of all the institutional investors, and you get the Bond allocation based on the market yield.

The biggest advantage of investing in Government Bonds is the negligible risk. There is no risk of default, but the interest rate might change. The longer the Bond term, the more sensitive it is to the interest rate movement. When you buy Government Bonds, consider the interest rates and tenure before deciding. Ensure that the money locked in the Bond gets enough return in the long run.

Conclusion

If you are an investor with a low-risk appetite and want a secure, risk-free investment, GOI Bonds are a great choice.

Disclaimer

ICICI Securities Limited has its registered office at ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No:- 022 - 2288 2460, 022 - 2288 2470. The non-broking products / services like iLearn and Financial Learning are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. iLearn is not an exchange traded product/service of ICICI Securities Ltd. All disputes with respect to the activity on the platform would not have access to Exchange investor redressal or Arbitration mechanism.

ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-69997051, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

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