Government Securities

 

Government securities(G-secs) are sovereign securities which are issued by the Reserve Bank of India on behalf of Government of India,in lieu of the Central Government's market borrowing programme.

The term Government Securities includes:

	Central Government Securities.
	State Government Securities
	Treasury bills

The Central Government borrows funds to finance its 'fiscal deficit'.The market borrowing of the Central Government is raised through the issue of dated securities and 364 days treasury bills either by auction or by floatation of loans.

In addition to the above, treasury bills of 91 days are issued for managing the temporary cash mismatches of the Government. These do not form part of the borrowing programme of the Central Government. 

We also deal in NSC , KVP ( Kisan Vikas Patr) , RBI Bonds , Post Office Scheme , PPF and all other

Types of Government Securities

Government Securities are of the following types:-

Dated Securities : are generally fixed maturity and fixed coupon securities usually carrying semi-annual coupon. These are called dated securities because these are identified by their date of maturity and the coupon, e.g., 11.03% GOI 2012 is a Central Government security maturing in 2012, which carries a coupon of 11.03% payable half yearly. The key features of these securities are:

	They are issued at face value.
	Coupon or interest rate is fixed at the time of issuance, and remains constant till redemption of the security.
	The tenor of the security is also fixed.
	Interest /Coupon payment is made on a half yearly basis on its face value.
	The security is redeemed at par (face value) on its maturity date.

 

Zero Coupon bonds: are bonds issued at discount to face value and redeemed at par. These were issued first on January 19, 1994 and were followed by two subsequent issues in 1994-95 and 1995-96 respectively. The key features of these securities are:

	They are issued at a discount to the face value.
	The tenor of the security is fixed.
	The securities do not carry any coupon or interest rate. The difference between the issue price (discounted price) and face value is the return on this security.
	The security is redeemed at par (face value) on its maturity date.

 

Partly Paid Stock is stock where payment of principal amount is made in installments over a given time frame. It meets the needs of investors with regular flow of funds and the need of Government when it does not need funds immediately. The first issue of such stock of eight year maturity was made on November 15, 1994 for Rs. 2000 crore. Such stocks have been issued a few more times thereafter. The key features of these securities are:

	They are issued at face value, but this amount is paid in installments over a specified period.
	Coupon or interest rate is fixed at the time of issuance, and remains constant till redemption of the security.
	The tenor of the security is also fixed.
	Interest /Coupon payment is made on a half yearly basis on its face value.
	The security is redeemed at par (face value) on its maturity date.

 

Floating Rate Bonds are bonds with variable interest rate with a fixed percentage over a benchmark rate. There may be a cap and a floor rate attached thereby fixing a maximum and minimum interest rate payable on it. Floating rate bonds of four year maturity were first issued on September 29, 1995, followed by another issue on December 5, 1995. Recently RBI issued a floating rate bond, the coupon of which is benchmarked against average yield on 364 Days Treasury Bills for last six months. The coupon is reset every six months. The key features of these securities are:

	They are issued at face value.
	Coupon or interest rate is fixed as a percentage over a predefined benchmark rate at the time of issuance. The benchmark rate may be Treasury bill rate, bank rate etc.
	Though the benchmark does not change, the rate of interest may vary according to the change in the benchmark rate till redemption of the security. The tenor of the security is also fixed.
	Interest /Coupon payment is made on a half yearly basis on its face value.
	The security is redeemed at par (face value) on its maturity date.

 

Bonds with Call/Put Option: First time in the history of Government Securities market RBI issued a bond with call and put option this year. This bond is due for redemption in 2012 and carries a coupon of 6.72%. However the bond has call and put option after five years i.e. in year 2007. In other words it means that holder of bond can sell back (put option) bond to Government in 2007 or Government can buy back (call option) bond from holder in 2007. This bond has been priced in line with 5 year bonds.

Capital indexed Bonds are bonds where interest rate is a fixed percentage over the wholesale price index. These provide investors with an effective hedge against inflation. These bonds were floated on December 29, 1997 on tap basis. They were of five year maturity with a coupon rate of 6 per cent over the wholesale price index. The principal redemption is linked to the Wholesale Price Index. The key features of these securities are:

	They are issued at face value.
	Coupon or interest rate is fixed as a percentage over the wholesale price index at the time of issuance. Therefore the actual amount of interest paid varies according to the change in the Wholesale Price Index.
	The tenor of the security is fixed.
	Interest /Coupon payment is made on a half yearly basis on its face value.
	The principal redemption is linked to the Wholesale Price Index.