What are Government Bonds:
Features and Benefits of
Government Bonds
Features of
Government Bonds
Overview
• RBI
issues
government
bonds
on
behalf
of
the
government.
• Municipal corporations and other government bodies
also issue bonds under RBI and SEBI guidelines.
• Bonds have diverse tenures, steady interest rates, regular
coupon payments, and transparent regulations.
Diverse Tenures
• Generally range between 5 to 40 years.
• Long-term bonds for long-term goals.
• Short-term bonds as short as one year.
Steady Interest Rate
⚬Pre-fixed rate of interest.
⚬Some exceptions like floating rate bonds or
zero coupon bonds.
Regular Coupon
Payments
• Semi-annual basis.
• Pre-set dates for coupon payments.
Transparent Regulations
and Operations
• Monitored by RBI.
• Complete transparency from issuance
to maturity.
Diverse Types of
Government Bonds
Fixed Rate Bonds
• Fixed interest rate throughout tenure.
• Market fluctuations have no influence.
Floating Rate Bonds
• Interest rate reset at pre-decided
intervals.
• Base rate and fixed spread system.
Capital-Indexed Bonds
• Linked with Consumer Price Index (CPI).
• Protects investments against inflation.
Inflation-Indexed Bonds
• Protects against inflation.
• Both accrued interest and principal
linked with CPI.
Bonds with Call/Put Options
• Call: Buyback by the government.
• Put: Sell back by the investor.
• Can have both options.
Special Securities
• Higher interest rates.
• Issued to entities like food corporations,
oil companies.
• Not accessible to retail investors.
STRIPS (Separate Trading of Registered
Interest and Principal of Securities)
• Bonds divided into individual coupons
and principal
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