Can a retail investor buy Government Securities?

Short Answer

Government securities include both T-Bills (Treasury Bills) and Government bonds which are both short and long-term instruments issued by the Central & State governments for various purposes. Retail investors are allowed to invest in G-Secs provided by the RBI. One can buy them directly from the Stock exchanges in a non-competitive method.

Detailed Answer

Government Securities (G-Sec)

Government securities or G-Secs are a type of debt instrument or loans that the Government of India issues to raise money for various purposes. Government securities can be issued by the Central as well as State governments. These loans provide a fixed rate of interest to the holder till the maturity date.

The government issues both short-term as well as long-term loans. The short-term loans (maturity of less than 1 year) are called as T-Bills or Treasury bills and the loans for more than 1 year are termed as Government bonds or dated securities. The central government issues both treasury bills as well as dated securities or government bonds whereas the State government only issues Bonds of maturity of more than 1 year known as State Development Loans (SDLs).

Can Retail Investors buy G-Secs?

Yes, retail investors are allowed to buy government securities or G-secs. The RBI has recently announced that retail investors will be provided the access to buy Government securities online through a Non-Competitive bidding way, directly from Stock Exchanges.

There are 2 ways to buy Government Securities

  • Directly buying Government Bonds & T-Bills.
  • Buying Debt Funds (Mutual Funds) that invest in Government securities.

1. Directly buying G-Secs from Stock Exchanges

Investors can buy government bonds through the primary as well as the secondary market. Various government bonds are listed on the stock exchanges that can be bought. Many stockbrokers allow investors to buy these securities and these get transferred to your Demat account directly from the depository.

While applying in the primary market the Lot size of government bonds is usually 10,000 rupees, hence investors with a capital of just 10,000 can invest in Risk-free government bonds. G-Secs is an ideal option for Risk-averse investors as they provide a better return than the traditional bank FD and are assured by the Government of India of repayment of the capital on the maturity date.

An example of government securities that can be bought through any online broker is, “79GS2034-GS”. The first 2 numbers denote the interest rate i.e 7.9% in this case and the maturity date is 2034, and the GS denotes Government security. In this way, you can buy any government security from the Stock Exchanges.

2. Buying Debt funds that invest in Government securities

Buying mutual funds or Debt funds is another option to get exposure to government securities. Buying mutual funds gives you better diversification compared to buying individual bonds. One also does not require to have a Demat account when buying Debt funds as the Folio is maintained and held by the Mutual Fund company and not by the individual in Demat form.

The only drawback when buying debt mutual funds is that you bear additional charges like expenses ratio & exit load charges which most of the fund houses charge. The upside of buying a debt fund is that there is ample liquidity. You can sell your holdings whenever you want to without worrying about finding a seller to buy the same at your desired price.

Government securities or G-Secs

Government securities are a good option for every investor who is looking to diversify their portfolio or have an allocation in Debt. G-Secs have the guarantee of the payment of interest and the repayment of the initial capital by the government of India hence the risk of the capital loss is Nil. Buying direct G-secs or buying Debt funds has its own merits and demerits so one should evaluate them before investing in them.

Tagged With: government bondsstate governmentcentral governmenttreasury billsdebt securities
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