Chapter 3 of 4

Government securities and T-bills

7 min read

Government securities (G-secs) are borrowings of the Government of India. Because the government can raise taxes and, if needed, create the currency it borrows in, they carry virtually no credit risk.

Types

Treasury bills: short-term, issued at a discount for 91, 182 or 364 days and repaid at face value. They pay no coupon; your return is the difference.
Dated government securities: longer-term bonds with a fixed coupon and maturities that can run to many years.
State development loans: bonds issued by state governments.
Sovereign Gold Bonds were an earlier route to gold-linked lending; availability changes, so check current schemes.

A treasury bill return

You buy a 91-day T-bill at ₹98.70 per ₹100 of face value.
At maturity you receive ₹100, a gain of ₹1.30, or about 1.32% over 91 days.
Annualised, that is about 5.3% a year.

How individuals can buy

The RBI's Retail Direct platform lets individuals open a gilt account with the RBI at no charge and buy T-bills and G-secs in the primary auctions, with a minimum of ₹10,000. A non-competitive bid gets you the auction's weighted average price.

Interest on G-secs is taxed at your slab rate.
Gilt mutual funds offer a managed route, but they carry interest-rate risk, not credit risk.
Prices of dated securities move with rates even though default risk is negligible.

Key takeaways

G-secs carry almost no default risk.
T-bills are discount instruments of 91, 182 or 364 days.
Retail Direct lets individuals buy directly from ₹10,000.

This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.