InvestorQ : What is meant by Government of India (GOI) dated securities (G-Secs) & what exactly are the types of new G-Secs are issued by Government of India?
Angel dcosta made post

What is meant by Government of India (GOI) dated securities (G-Secs) & what exactly are the types of new G-Secs are issued by Government of India?

user profile image
Dhwani Mehta answered.
1 year ago

Like Treasury Bills, G-Secs are issued by the Reserve Bank of India on behalf of the Government of India. These form a part of the borrowing program approved by the parliament in the ‘union budget’. G- Secs are normally issued in dematerialized form (SGL). When issued in the physical form they are issued in the multiples of Rs. 10,000/-. Normally the dated Government Securities, have a period of 1 year to 20 years. Government Securities when issued in physical form are normally issued in the form of Stock certificates. Such Government Securities when are required to be traded in the physical form are delivered by the transferor to transferee along with a special transfer form designed under Public Debt Act 1944.

The transfer does not require stamp duty. The G-Secs cannot be subjected to lien. Hence, is not an acceptable security for lending against it. Some Securities issued by Reserve Bank of India like 8.5% Relief Bonds are securities that are specifically notified & can be accepted as Security for a loan.

Earlier, the RBI used to issue straight coupon bonds i.e. bonds with a stated coupon payable periodically. In the last few years, new types of instruments have been issued. These are :-

Inflation linked bonds

These are bonds for which the coupon payment in a particular period is linked to the inflation rate at that time - the base coupon rate is fixed with the inflation rate (consumer price index-CPI) being added to it to arrive at the total coupon rate.

The idea behind these bonds is to make them attractive to investors by removing the uncertainty of future inflation rates, thereby maintaining the real value of their invested capital.

FRBs or Floating Rate Bonds

These come with a coupon floater, which is usually a margin over and above a benchmark rate. E.g., the Floating Bond may be nomenclature/denominated as +1.25% FRB YYYY (the maturity year ). +1.25% coupon will be over and above a benchmark rate, where the benchmark rate may be a six month average of the implicit cut-off yields of 364-day Treasury bill auctions. If this average works out 9.50% p.a then the coupon will be established at 9.50% + 1.25% i.e., 10.75%p.a. Normally FRBs (floaters) also bear a floor and cap on interest rates. Interest so determined is intimated in advance before such coupon payment which is normally, semi-annual.

Zero coupon bonds

These are bonds for which there is no coupon payment. They are issued at a discount to face value with the discount providing the implicit interest payment. In effect, zero coupon bonds are like long duration T - Bills.