Government Bonds in India | Types, Advantages, and How to Invest (2024)

FAQs

What are the best government bonds to invest in India? ›

Types of Government Bonds in India

GOI Savings Bond: Offering a current interest rate of 8.05% till 31st December 2023, the GOI Savings Bonds are backed by the government, making them a stable and reliable investment. These bonds are ideal for those focused on capital preservation and desiring a steady income stream.

Advantages of investing in government bonds

Government bonds carry lower risk compared to other assets like equities, as the returns are guaranteed by the government. There are some market-related risks, but by simply holding on to the bonds until maturity, you can nullify the risk.

Bond Meaning

There are several investment options in India and bonds are one of them. Bond is said to be a debt instrument in which the issuer company borrows money from the lender (bond holder) and, in return, is obliged to pay interest on the principle amount. The interest is called the coupon.

Are government bonds safe? Owing to the Sovereign guarantee that government bonds offer, they are considered one of the most secure investments in India. For investors who cannot accommodate interest rate risk, government bonds prove to be an ideal investment.

The popular tax-free bonds in India are typically those issued by government-backed enterprises such as the National Highways Authority of India (NHAI), Indian Railway Finance Corporation (IRFC), and the Housing and Urban Development Corporation (HUDCO).

Both bonds and notes pay interest every six months. The interest rate for a particular security is set at the auction. The price for a bond or a note may be the face value (also called par value) or may be more or less than the face value.

For tax-free bonds, the interest earned on the bonds is non-taxable. But for a tax savings bond, you get benefits on the investment amount, and the interest is taxable.

Government bonds are considered low-risk investments. However, they come with some level of risk that investors need to be aware of. While treasury bills are considered risk-free investments, they still come with risks such as interest rate risk, inflation risk, and reinvestment risk.

G Secs Bonds or Government Securities are long-term debt instruments issued by the Government of India through auctions conducted by the Reserve Bank of India (RBI). They come with different maturities ranging from short term government bonds (less than one year) to long-term (up to 40 years).

Most bonds issued by government agencies are tax-exempt. This means interest on these bonds are excluded from gross income for federal tax purposes. In addition, interest on the bonds is exempt from State of California personal income taxes.

Is it good to invest in government bonds in India? ›

You can use government bonds to diversify the risk of your portfolio. By being risk-free, they reduce the overall risk exposure of your investment portfolio. They come with various maturity periods, from less than 91 days to 40 years. Therefore, you can ladder your investments using these.

The India 5 Years Government Bond has a 7.121% yield (last update 11 May 2024 2:15 GMT+0).