What are the Government Securities / G-sec.

Government Securities are the debt instruments of the governments. Government needs extra funds for the day-to-day activities and for other purposes. To get money, Govt issues such securities and investors do invest in it and fund the Govt. itself. Many mega projects of the Govt. of India are funded by such G-sec.

What is a debt instrument ?

A ‘debt instrument’ is a document or a contract or a promise issued by an entity (such entity can be a company or a government). It is issued to take loans/ raise funds. The document insures to repay the principal amount and the interest on such a loan.

What Government Securities actually are ?

Govt. Sec – A Government Security (G-Sec) is a tradable instrument issued by the Central Government or the State Governments. It is the Government’s debt obligation. Such securities are short term (with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both, treasury bills and bonds while the State Governments issue only bonds, which are called the State Development Loans (SDLs).

If we invest in, it is like giving a loan to the government itself ! A Govt. sec. are now in an electronic form and not in a physical form. Which means you can invest in G-sec online. A ‘G-sec’ represents a loan given to a government by the investor who purchased/invested in the G-sec. These debt instruments/bonds are the promise that the government will repay the principal amount plus the interest on a specific date of maturity.

The G-sec is also called as a bond. A bond is a debt instrument through which an investor loans money to a company or a government. These bonds are issued by the companies or governments to raise fund, and they repay the principal plus a fixed or a floating interest on the principal.

Types of G-sec

The types of government securities are based on the time period for which they have been issued. The name of the G-sec changes according to the maturity period. Following are the different types –

• Treasury bills (T-bills)
  • Are issued by the Govt. of India. These are the short term debt instruments, i.e. maturity is less than a year.
  • T-bills are issued in three types of maturities – 91 days, 182 days and 364 days.
  • T-bills are zero coupon bonds, meaning the T-bills do not have an interest rate. Instead, T-bills are issued at discounted price and repurchased at the actual price.
  • E.g.- A T-bill is worth Rs.1000 but the Govt. issued it at a discounted price of Rs.950. When the T-bill will get mature, the Govt will purchase it at Rs.1000.

• Govt bonds/ Dated securities –
  • These are the long term debt instruments of the Govt. i.e. the maturity period of these bonds is 1 year or more than a year.
  • Such bond are issued by the Govt of India and the state governments in India.
  • These long term bond may have a maturity period up to 40 years.
  • The dated securities pay interest plus repay the principal amount on maturity. So, these are not the zero coupon bonds like T-bills.