Dec 13, 2017
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Types of Government Securities In India

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Types Of Government Securities In India

Government Securities

The Central and also the State Government issues the government securities. It is a government’s debt liability.  The Government securities do not carry any risk so it is called as gilt-edged security. Low-risked securities are Government securities. Government taxing power is the reason for it. There are short term securities such as treasury bills with maturity of less than one year and long term securities such as government bonds or also dated securities with maturity of more than one year. 

The Central Government issues  treasury bills and also bonds or dated securities and the State Governments issue only bonds and also dated securities. The government securities are issued with an intention to refund on the date of maturity and raising fresh cash or capital. Government securities are known to be  most secured financial instrument. They also provides safety of capital and income. Therefore,Central government securities are the most safest one. The government securities holds important position in the financial market. Th face value of the government securities are normally in denomination of Rs. 100 or also Rs 1000. Government securities carry lower rate of interest.  There are three forms of securities and they are stock certificate, promissory note and bearer bond. But only, promissory notes are currently used.

Types of Government securities

  • Dated securities with a fixed maturity date.
  • Zero coupon bonds.
  • Partly paid stock.
  • Floating rate bonds.
  • Capital indexed bonds.

 1. Dated securities with a fixed maturity date

      Dated Government securities long term securities and with fixed interest. Paid on the face value and redeemed at fixed date (usually half-yearly).
Features of Dated Securities with fixed maturity date:
  1. Issued at face value.
  2. Fixed interest rate and remains constant till redemption of the security.
  3. Fixed maturity date.
  4. Interest paid on face value and paid on half yearly basis.
  5. Redeemed at par on its maturity date.

2. Zero coupon bond

Zero Coupon bonds issued at discount and redeemed at par. Introduced on January 19, 1994. Issued subsequently in 1994-95 and 1995-96 respectively.

Features of these securities are:

  1. Issued at discount to the face value.
  2. Fixed period.
  3. It do not carry any interest rate.
  4. Difference between issue price and redemption price is only the returns for such bonds.
  5. Redeemed at par.

3. Partly paid stock

Partly Paid Stock is payment of principal amount in installment. It meets the needs of investor with regular flow of funds and also meets the need of government. Introduced on 15th November,1994 with period of eight years of Rs 2000 crore.

Features of these securities are:

  1. Issued at face value.
  2.  Principal amount payable in installment.
  3. Fixed Period.
  4. Interest paid on face value and paid on half yearly basis.
  5. Redeemed at par.

4.Floating Rate Bonds

Floating Rate Bonds do not carry fixed rate of return. It has fixed intervals. Government  securities with floating rate of interest issued have weighted average rate of last years. Introduced on September 1995 in India.

5.Bonds with Call/Put Option:

The Bonds can also be issued with option of call (buy-back) and put (Sell the bond).  Bond was issued on July 18, 2002 with maturity of 10 years matured on July 18, 2012. The option can be adopted after completion of five years from the date of issuance on any coupon. The government also has a option to buy back at par value while the investor can sell the bonds to government at par value.

6.Capital indexed Bonds :

Capital indexed Bonds has rate of interest fixed percentage over the wholesale price index. It also provides investors effective protection against inflation. Introduced on December 29, 1997 on tap basis with five years of maturity. Coupon rate was 6% over the wholesale price index. Therefore, the Wholesale Price Index connected to redemption.

 

Article Categories:
The Companies Act, 2013

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