The inclusion of Government Bonds India in JPMorgan’s closely watched emerging market debt index might result in billions of dollars flowing into India. JPMorgan sources said Indian bonds will be included in the Government Bond Index-emerging markets (GBI-EM) index and global funds index suite, which is benchmarked by $236 billion. On June 28, 2024, JPMorgan will add Indian bonds to its index adjusted for 10 months, boosting it by 1%. This is because India is anticipated to attain the maximum weighting of 10%. According to JPMorgan, Indian Government Bonds (IGBs) totaling $330 billion in notional value are qualified for inclusion.
Government Bonds India
Debt investment products having a fixed rate of return and fixed maturity period are bonds and debentures. While debentures are always issued by firms, bonds are securities that are often issued by the federal and state governments. The Indian government offers bonds to finance several purposes, including development, non-commercial and commercial activities, and debt management.
Governments and other public and private sector organizations utilize bonds as debt instruments to generate money for their initiatives. They provide investors with predictable and guaranteed profits in return. Bonds are thus advantageous to investors as well as fundraising organizations. Bonds may be categorized as corporate, municipal, public sector, government, or corporate bonds, depending on the issuing companies.
Clearing and Settlement of Government Bonds
Government Bonds are settled in the secondary market using the Delivery versus Payment method, which entails the simultaneous delivery of existing securities and the transfer of funds. The clearinghouse in this case, CCIL, serves as the buyer’s and seller’s counterparty. To that end, CCIL maintains a “Settlement Guarantee Fund” and collects margins from each member.
How to invest in government bonds in India?
Indian government bond investing is straightforward and uncomplicated. You may open a trading Demat account with a bank or invest via GILT mutual funds to get a consistent, stable, and superior interest rate on government bonds.
How Government Bonds Are Issued?
Indian government bonds are available via e-Kuber from the Reserve Bank of India. All e-Kuber members, non-members, and retail investors may attend these auctions. E-Kuber members may have RBI SGL accounts. Non-members need a Gilt bank or Primary Dealer account to attend these auctions. The retail investor needs gilt accounts.
Retail investors may bid in “Non-competitive Bidding” auctions. RBI offers State Development Loans (SDLs) bonds with federal government approval. RBI publishes auction schedules on its website and in major newspapers (English and Hindi only).
Who can buy Government Bonds?
Government bonds are a great option for anybody wishing to invest their idle cash and diversify their investing portfolio. This comprises –
- Financial Institutions
- Foreign Investors
- Institutional Investors
- Retail investors
Guide to Buying Government Bonds
- NSD-OM is the active government bond secondary market. Government bonds may be bought and sold directly by banks on NSD-Om. Retail investors may trade NSD using their custodian or Gilt account.
Over the counter
- Retail and institutional investors may acquire government bonds through financial institutions.
- The exchange should feature a debt component where all Demat account holders may buy/sell bonds.
- FAR allows foreign investors to buy government bonds.
Types of Government Bonds
The government issues a variety of bonds with varying maturities, coupon rates, and other characteristics. These include:
- Dated Government Securities
- Treasury Bills
- Cash Management Bills
- State Development Loans
Dated Government Securities
Dated securities usually have set interest rates. Most government securities have a 5- to 40-year maturity. Dated government securities (Sovereign Guarantee Bonds) types:
- Zero-Coupon Bonds
- Fixed-Rate Bonds
- Bonds with Call or Put Option
- Capital Index Bonds
- Sovereign Gold Bonds (SGBs)
- Inflation-Indexed Bonds
- Special Securities
- 75% Savings (Taxable) Bonds, 2018
Advantages of Investing in Government Bonds
- Since Central or State Governments issue G-Secs, credit risk is nil.
- G-secs often have coupons above 6% p.a.
- From 14 days to 40 years. Investors may choose one that suits them.
- Loans may be secured with G-secs.
- Under Section 10 (15) (iv) (h) of the Income Tax Act, 1961, investors may avoid taxes by buying tax-free bonds.
Disadvantages of Investing in Government Bonds
- Low Returns: Generally offer lower yields compared to riskier investments.
- Inflation Risk: Returns may not keep up with rising prices.
- Interest Rate Risk: Bond prices can fall if interest rates rise.
- Limited Capital Growth: Primarily focus on income, not capital appreciation.
- Reinvestment Risk: Reinvesting at lower rates when bonds mature.
- Taxation: Interest income is often subject to taxation.
- Lack of Liquidity: Some bonds may have low trading activity.
- Market Fluctuations: Prices can fluctuate based on market conditions.
- Opportunity Cost: May miss out on higher-return investments.
- Diversification Limitation: Overemphasizing government bonds can limit portfolio diversification.
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