Types of Government Bonds in India

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Types of Government Bonds in India
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Government securities in India have gained phenomenal attention among the public over the recent years. To make things simple, the term bond means loan. When you buy a bond, it means that you are lending your money to the entity that is issuing you the bond. Such an entity can be the government, bank or a corporate enterprise. The bonds that are issued by the government are known as government bonds. The issuer of the bond is under the obligation to pay the investor the interest towards the investment after the specified duration of time. Once the bond matures, the issuer will also have to repay the principal amount. Hence investments made in bonds are known as fixed income investments.
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What are government bonds?

When the government needs funds to finance a particular project intended for the welfare of the public, the government will not usually raise the taxes. On the other hand, the government will send bonds to the public inviting investments. Upon the maturity of the bond, the government will pay back the principal and interest as per the clauses mentioned in the bond. The bond issued by the central government of India are supervised by the Reserve Bank of India.

The RBI issues the government bonds on behalf of the central government for the purpose of financing the fiscal deficit. Over the past years, government bonds have been deemed by banks, financial enterprises and corporates as a viable choice for investment. During the recent years, individual investors are taking a lot of interest in investing in government bonds. Some of the benefits associated with government bonds are that they are risk free, provide encouraging returns over the long term, carry good amount of liquidity, and can help diversify the investor’s portfolio.

Types of government bonds in India

Treasury bills


These are short term government bonds that mature within one year. The categories in which you can find them are 91 days, 182 days and 364 days. The investor does not get interest payments. The difference between their face value and the discounted price in which they are purchased is the profit the investor gets out of these bonds.
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Cash management bills

These are short term securities issues as per the arising needs. They are highly flexible in nature. The term of these bonds depend on the cash needs of the government. Usually it is less than 91 days.

Dated government securities

This kind of government bond comes with a varying rate of interest. The interest paid on the bond benefits the investors. The term ‘dated’ means there is an element of predetermined date of maturity. These bonds are auctioned by the RBI.

State development loans

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State government loans are also considered as government bonds. They are issued by the state government in order to meet the requirements of the budget. The RBI adopts a negotiated dealing system to make it possible to issue these bonds. The interest rate on these investments are decided during the auction. When compared to other kinds of government bonds, the interest rates are rather high in these bonds.
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