Government securities, commonly known as G-secs, are debt instruments issued by both the central and state governments to raise funds from the public. These funds are used by the government to finance a range of projects, from everyday initiatives to special infrastructure projects or even military operations. G-secs function like loans to the government, with the paid interest serving as the return on investment.
“Due to the government’s low risk of default, G-secs are a trusted and secure investment choice for individuals and institutions,” said Puneet Maheshwari, Director, Upstox.
Different types of government securities
The array of G-secs encompasses Treasury Bills (T-Bills), Government Dated Securities (G-Secs) a.k.a Government bonds, State Development Loans (SDLs), Inflation-Indexed Bonds (IIBs), and Sovereign Gold Bonds (SGBs), each offering distinct avenues for investment and strategic financial planning, said said Puneet Maheshwari.
Five benefits of investing in government securities
1)Safety: Government securities are backed by the full faith and credit of the government, making them one of the safest investment options available. “Additionally, government securities are considered virtually the safest investment option as they are backed by the government’s creditworthiness,” said Maheshwari.
2)Stability: They offer predictable returns with fixed interest payments and the assurance of principal repayment at maturity.
3) Diversification: Government securities can diversify a portfolio by providing stability and liquidity, particularly during times of market volatility.
According to Director, Upstox, investing in different types of government securities allows for diversification within the fixed income and debt asset class. G-Secs stand out as one of the most secure and stable investment options.
4) Capital Preservation: Government securities offer protection of capital, making them suitable for investors seeking to preserve their wealth over time.
They are often compared to fixed deposits because they help in preserving capital. However, an important point to note here is that with fixed deposits, only a sum up to ₹5 lakh is insured against bank default. Since governments rarely default, the capital parked in a G-sec is far more secure, added Upstox director
5) Income Generation: They provide a reliable stream of income through periodic interest payments, making them suitable for income-oriented investors.
Overall, government securities offer a combination of safety, stability, and income generation, making them attractive investment options for a wide range of investors.
Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 13 Mar 2024, 01:55 PM IST