Module 8 Currency, Commodity, and Government Securities

Chapter 19

Government Securities


19.1 – The new beginning

In a very exciting new development, NSE in collaboration with RBI has recently made it possible for retail investors to start investing in Government Securities, mainly the long-dated bonds and the treasury bills (T-bills).

These were products which were available only to banks and large financial institution, but now we can invest in them and take advantage of attractive and guaranteed returns. However, since these are new financial instruments (at least to the retail participants), understanding the nuances before investing is important. For this reason, we have put the following conversational FAQs with a hope that you will be able to figure out the basics.

Do read on and post your comments below.

19.2 – FAQs on G-Sec


What am I investing in?

You are investing in Bonds/T-bills issued by the Government of India. Since these are backed by the Government of India, these are virtually risk-free investments. The guarantee from the Government is also called ‘Sovereign Guarantee’.

What are bonds/T-bills?? Tell me more.

Whenever you and I need money we go to the bank to avail a loan. Against this loan, we promise to pay the bank periodic interest and also return the money after a certain amount of time. This is common practice, where the interest and principal is repaid back to the bank.

Likewise, the Government of India also needs money to build roads, bridges, dams, hospitals, etc. When they run short of money, they approach their bank for a loan, which is the RBI. The RBI, in turn, auctions the loan in the form of bonds/T-bills that you can purchase. Essentially, you are lending a part of the overall loan the government is seeking.  Against this loan, the Government of India, promises to pay a periodic interest and also repay the principal at the end of the tenure.

The loan which the government intends to repay within a year is called the Treasury Bills or T-bills. Loans which the Government intends to repay over many years are called the Bonds.

What should I choose? T-Bills or Bonds?

Both are great investments if you seek the safety of your capital. There are a few easy to understand variables that you need to look at before deciding on an investment in these two G-Sec instruments.

Variables like what? Start with T-bills, please.

There are three T-bills variants and they vary based on the maturity period. They are 91 days, 182 days, and 364 days. T-bills do not carry an interest component, in fact, this is one of the biggest difference between T-bills and Bonds. T-bills are issued at a discount to their true (PAR) value and upon expiry, its redeemed at its true value.

Woah! That sounds complex. Give me an example, please!

Ok, consider a 91-day T-bill. Assume the true value (also called the Par value), is Rs.100. This T-bill is issued to you at a discount to its par value, Say Rs.97. After 91 days, you will get back Rs.100 and therefore you make a return of Rs.3. Think of it, this is as good as buying a stock at Rs.97 and selling it after 91 days at Rs.100.  The only difference is that this is a guaranteed transaction, meaning, there is no risk of you selling below 100 (or above 100).

This sounds quite straightforward, is there anything else I need to know about T-bills?

That’s it pretty much. You just need to remember that t-bills are issued at a discount to par and upon maturity, you get the Par value. Of course, you can get a little technical and measure the yield of this investment if you want.

I’m all ears, let’s get technical!

Yield essentially measures the return on your investment on an annualized basis. Afterall, all investments should be measured by its returns on an annualized basis. So if you have made 3 bucks over 91 days on an investment of Rs.97, then at this rate, how much would you have made on a yearly basis?

The formula is –

Yield = [Discount Value]/[Bond Price] * [365/number of days to maturity]

= [3/97]*[365/91]

= 0.0309*4.010989


So in other words, the T-bill offers a return on investment of 12.4052%, but since you held it for 91 days, you will enjoy this return on a pro rata basis.

Typical 91-day yields are around 6-7.5%. Needless to say, higher the yield, the better it is.

What happens upon maturity of a T-bill?

Upon the maturity, the Government debits the T-bill from your DEMAT automatically, this is called ‘Extinguishment of Securities’ and the par value gets paid to the bank account linked to your DEMAT account.

Is that all about T-bills? Is there anything else that I need to know?

Nope, that’s it. You are all good to start 🙂

Alright, tell me how the bonds work.

Bonds differ from T-bills on 2 counts. Bonds have long-dated maturities and they pay interest twice a year.

Sounds, interesting. Can you give me an example?

Every bond issued will have a unique name or symbol. The symbol contains all the information you’d need. For example here is a symbol – 740GS2035A, and here is what this really means –

Annualized interest – 7.40%

Type – Government Securities (GS)

Maturity – 2035

Issue – ‘A’  means its a fresh issue (don’t worry much about this, just be aware that this is NSE’s internal nomenclature for their own book-keeping )

This issue is expiring in 2035 or 17 years from now (we are in 2018). If you were to invest in this bond, you will receive 7.4% interest every year until its maturity in 2035. Please note, the interest will be paid semi-annually, so you will get 3.7% interest twice a year. Finally, upon maturity, you will also get back your principal amount.

Here are few more government security (GS) symbols –

Symbol Annualized Interest Semi-annual interest Maturity Year # years to Mature
662GS2051 6.62% 3.31% 2051 33
668GS2031 6.68% 3.34% 2031 13
737GS2023 7.37% 3.68% 2023 5

Can you give me an illustration to help me understand how much I earn if I were to invest in a bond?

Fair enough, but before we get into the details you need to know one more thing.

Every bond has a Par value, of say Rs.100. When you invest in a bond, you usually invest either at a discount (ex: 98, 97 etc) or at par (100), or at a premium to par (101,102 etc). The price at which you invest in a bond depends on something called as an ‘auction process’. More on that later, but for now, you need to be aware that you can invest in a bond at par, at a discount, or at a premium.

Now, consider you invest in 700GS2020 (7% with a maturity of 2020 or 2 years from now) at a discount price of 98.4. Assume, you invested in 150 of these bonds, so you’d pay –


= Rs. 14,760/-

From the time you invest, the interest cycle starts. The interest is paid on the face value of the bond. The total amount you earn is as follows –

Time Period Interest Cash flow Remarks
0 – 6 Months 3.5% 3.5% * 100 * 150 = Rs.525 Half year interest
6 months  – 1 year 3.5% 3.5% * 100 * 150 = Rs.525 Half year interest
1 – 1.5 years 3.5% 3.5% * 100 * 150 = Rs.525 Half year interest
1.5 – 2 years 3.5% 3.5% * 100 * 150 = Rs.525 Half year interest
At Maturity (2 years) Principal repayment at Par 150 * 100 = 15,000 Additional Rs.240

So on an investment of Rs.14,760/- you will earn –

525 + 525 + 525 + 525 + 15,000

= 2100 + 15,000

= Rs.17,100/-

If you do the math, the yield on this works out to approximately 7.88%. RBI has beautifully explained the calculation of yield here, do check this if you are keen to know more.

I’ve heard the term ‘ Yield to Maturity’, is this the same? 

Hmm, not really. The concept of ‘Yield to Maturity’ or YTM is a little tricky. The YTM calculation assumes that you reinvest the interest payment back into a similar bond, which further generates interest on interest. Bond traders and institutional investors only look at YTM, because this is the true comparable value between two different bonds.

This is similar to reinvesting the dividends from a stock back into the stock.

Alright, tell me about the interest payment? How does it get paid?

The interest payment gets credited directly to your bank account linked to your DEMAT account, just like the way you receive the dividends from a company.

Can you give me some insights into the auction process?

Till recently, investment in G-Sec bonds/T-bills was restricted to banks and large financial institutions with a minimum ticket size of 5 Cr. However, recently NSE and RBI have opened it up to retail investors with a minimum of Rs.10,000/- investment.

However, the price you pay for the bonds is still decided by the banks and other major financial institutions. They place bids on RBI’s auction platform and RBI decides the price of the bonds based on these bids placed on their platform. So the auction process is basically a process to discover the price you’d pay for the bond, also called the weighted average price of the bond.

So it is the weighted average price of the bond, the price I need to pay in order to purchase the bonds?

Yes and no.

At the time of placing your order, you pay a slightly higher amount. This amount is called the ‘amount payable’. Once all the orders are placed, the auction process starts and RBI evaluates the weighted average price. Any difference between the ‘amount payable’ and ‘weighted average price’,  is credited back to your account the very next day.

They tell me the investments in GSec is better than investments in FD, why is that?

There are a couple of reasons for this, but the big one first – the yield on G-Sec is better than the yield on FD. Here is a quick comparison of the yield (in percentage) for both FD and GSec –

91 days 184 days 364 days 1 Year 2 Years 3 Years 5 Years 10 Years
FD (Yield) 6.00 6.03 6.38 6.42 6.47 6.53 6.40 6.42
GSec (Yield) 6.02 6.20 6.41 6.45 6.80 7.05 7.33 7.34

*Source: Average interest paid by major PSU Banks

Apart from better yields, there are few other factors which make G-Sec more attractive –

  • Unlike bank FDs, the investments in G-Sec are safe as its backed by Government of India
  • Guaranteed return on both interest and principle
  • Unlike FD, there is no TDS
  • Long dates maturities which mean you can lock in attractive interest rates for a longer period
  • Can use used as a collateral to avail loan
  • Option to sell them in the secondary market

Clearly, whichever way you look at it, G-Sec is a smarter option than bank FDs.

Wait for a second, what do you mean by ‘option to sell in secondary market’?

This works exactly like how you buy and sell stocks.

Let’s say you decide to invest in 740GS2035A. This means you will continue to enjoy a semi-annual interest payment of 3.7% every 6 months for the next 17 years, till 2035. Now, after a few years, you no longer wish to hold this bond. In such an event, you can decide to sell this bond in the secondary market, pretty much like how you buy and sell stocks on NSE.

However, for now, you can only buy these bonds via our order collection window, you cannot sell them just yet. To sell, these bonds, these bonds need to be available in the cash segment of NSE. These bonds are expected to be available in the cash segment sometime soon. Once it is available, look for 740GS2035A (or any other bond) in the Kite Marketwatch and hit sell to liquidate your position.

Great! Looks like I’ve got my basics right. Is there anything else that I need to know?

Think of the whole thing as applying for an IPO followed by the stock getting listed on the exchanges. It’s pretty much the same. The auction process is like the IPO and once the bidding is done, the Bond (or T-bill) will get listed on the exchange. You can sell the bond whenever you want or you can even trade the bond once it gets listed!

The minimum ticket size if Rs.10,000/- and its multiples and a maximum of Rs. 2 Cr. You can place the orders when there are new auctions (just like an IPO). However, the good part is that RBI notifies the auction dates and schedule well in advance.

Here is the calendar for the upcoming t-bills auctions.

Here is the calendar for the upcoming bond auctions.

Here is the link of all the bonds that have been issued by RBI. Do pay particular attention to the nomenclature, coupon rate, and year of maturity.

What about taxes?

Bonds – Interest income is credited to your bank account. It is considered as income from other sources and taxes have to be paid as per the income tax slab. If there is any appreciation in the bond price, it is considered capital gains. Long-term (LTCG) is 10% flat or 20% with indexation. STCG is as per the applicable slab rate.

T-bills – You buy at discount and sell it at par. This appreciation is considered as short-term capital gain, and taxes as is per the applicable slab rate.

In case of G-Secs gain is considered long term (LTCG) if held for more than 3 years, otherwise it is short term capital gain (STCG).

Will I get assured allotment if I place my order?

These securities are issued for limited amounts and there is no guarantee of allotment if the number of bids received is higher than the issue size. However, if you fail to get an allotment, you can try again next week. RBI carries out multiple issues a month.

This sounds good. How do I start?

Start Investing Now!

Happy investing!

Post your comments below.


  1. Nikunj Purohit says:

    I did bit of research about 700GS2020 and similar names on NSE . I can only found bond futures trading on NSE that too with very low volumes. Also can you tell me ticker for T-bills or they will be available post 2018 Aug? Am I missing something?
    Also I have read in books that people invested in bonds during 2008 crash and still made money. Which script do they went for in Indian markets?

    • Karthik Rangappa says:

      Nikunj, yes at present only the bonds are listed. The actual bonds are yet to be listed, and NSE says they will be listed by August this year and I guess the trading symbol will be known around the same time.

      I have no idea about the 2008 bonds, Nikunj. But I’m not surprised at all. When there is fear in EQ markets, the bond markets tend to perform quite well.

  2. Gokul says:

    How to Actually invest in these securities ? Can we do this from our Dmat Account or there is any other way ?

  3. Kiran G says:

    Is interest earned on this bills and bonds are taxable ?

    • Karthik Rangappa says:

      Yes, they are taxable.

      • A J says:

        The article says that indexation benefit is available. How is that possible if we are getting paid interest semi annually?

        • Karthik Rangappa says:

          Indexation is on the capital appreciation i.e the difference between the price at which you buy the bond and the price at which you sell the bond. The interest income gets clubbed to your other income and you are taxed accordingly.

          • Sujeet Raj says:

            Hi Karthik, the price of the bond gets pulled to the par as time passes (if nothing else changes aka credit rating of the govt), hence shouldn’t we price the bonds (buy price) at it’s constant yield-price trajectory while selling and calculate our capital gains against this price so that it is amortized over it’s time period.

            Example for discount bond: We buy bonds @ Rs 95. After 2 years we sell @ Rs 98. But as per the constant yield trajectory, the price of the bond should be Rs 97. That means we have made capital gain of 98-97 = Re 1.

            This is what I studied for CFA. Not sure how Indian Tax laws interpret it.

          • Karthik Rangappa says:

            Sujeet, this is interesting, but I don’t think the taxation works on constant yield-price trajectory. I will verify and get back. However, when you hold the bond for more than 3 years, you can take the benefit of indexation (for capital gains), which works pretty much like the way you explained in the example.

          • Sujeet Raj says:

            Also, If we invest (from initial bidding)/buy at Rs 95 and hold till maturity, we will get Rs 100. Then this is the maturity amount which we are guaranteed to get. I don’t think this should be considered as Rs 5 capital gains. The constant yield-price trajectory supports this idea.
            Similarly, if it is a premium bond that we buy (say @Rs 105), we will still get Rs 100 at maturity. We shouldn’t be able to show this as capital loss.
            Please do verify and update us. Thanks a lot 🙂

  4. Rohan says:

    Hey Kartik!
    I wanted to know whether there are any free paper trading platforms available online. Could you please help me out here.

  5. Bharat Gupta says:

    How can we invest in government bonds and securities on Zerodha ?

  6. Saurabh Phapale says:

    Hi Karthik,
    Can you explain more about auction process for retail investors? How we can apply for auction? Currently der is not much information about it.

  7. Apoorv says:

    Sir, what brokerage do u charge in buying and selling of G-bonds and T-bills?

  8. Siddharth Sharma says:

    When is zerodha planning to start allowing retail investors to participate in non competitive auction? It was announced by nse in may, and no major player has started it yet.

  9. D.laxmi says:

    Oka sari bond konte malli konanousaram leda prathi sanvasaram

    • Bhuvanesh R says:

      Oka saari bond konte, maturity unna varaku, meeku interest vasthuntadi. Prati samvatsaram konalsunna avasaram ledu. Prastutam, ee bonds meeru inka Zerodha lo konadaniki avvadu. Twaralone konocchu.

  10. shaawm says:

    Any idea how liquid this will likely be? The retail bond market is so illiquid that I have mostly given up on my aim to build a cost effective liquid debt portfolio. Will there be a common platform where retail and institutional lenders compete with scope for block deals? I feel the retail debt in India is artificially protected with schemes like ppf etc., I have seen people who had TDS for their FDs and still getting good tax refunds. Sad situation indeed.

  11. VC says:

    So just to get a better idea, people say Gsec bond market is volatile, but if i buy and hold till maturity ? In that case i dont have to worry on volatility right ?

    For eg: Face Value is Rs 1000 at 7% (annual payment) and i buy that bond at 1090 and hold it for 30 years, my annual payment is Rs 63 for that 30 years period right ?

    Also by when will this be available in Zerodha ? Do we have the facility to buy 7.75% GOI bonds in Zerodha as well ?

  12. Aritra says:

    Hey Karthik, sorry to ask this once again, but you guys are definitely going to bring out a platform for retail investors to access T Bills and GSecs, right? And can you give an approximate timeline for when it’s going to go live, like end-November, December, or next year?

    The reason I’m asking is that for personal reasons I’ve had to stop equities investments; I’m only interested in fixed income as of now. So the only reason for me to open an account with you guys would be to access T-Bills and GSecs.

  13. Deepak Gupta says:

    Hi! What happens to the interest in case I sell the bond in between interest periods (six months)? Is it priced into the bond sale value accordingly?

  14. Saurabh says:

    Hey, this post is really informative and I saw the comments about setting up an order collection form where we can place our orders to buy these securities.

    My question is: What is the difference between Bonds described in this FAQ ( VS the Bonds described here? If both are same, do the yield and return calculations done in a similar way? Also, if both are the same securities we’re talking about, how come the buying options are different?

    Waiting for your help,

    • Karthik Rangappa says:

      Saurabh, the bonds and t-bills described here are from the primary market plus they are backed by the Govt of India. On the support page, we are talking about bonds available on the secondary market, mainly tax-free and corporate bonds.

  15. Shyam says:

    Hi Kartik sir,

    When will we be able to buy rbi t bills and bonds on zerodha platform?

  16. Vinny says:

    Hi Karthick,

    Can i buy T-Bills and pledge them to zerodha and get trading margin ?
    If Not, will zerodha be open to consider it ? (i mean, if you are giving margin on stocks, T-Bills/Bonds are literal cash. :))

    – Vinny

  17. Harshesh says:

    Hello ,

    Can you help me regarding how to know if the particular Bill/Bond is available at discount/Par/Premium on the platform.


    • Karthik Rangappa says:

      As retail participants, we are price takers. Remember this is a non-competitive bidding, hence it would be difficult to ascertain if the bond will be priced at PAR or discount.

  18. Ashwin says:

    What is the penalty for early withdrawal?

    • Karthik Rangappa says:

      There are no penalties as such for early withdrawal.

      • Ashwin says:

        1. So say for 90 day T-bill, I could withdraw the amount in 30 days and still get the applicable % returns for the invested 30 days?
        2. Then why do they have 20 years and 40 years bonds, I could subscribe them and withdraw after a year with higher interest right?

        • Karthik Rangappa says:

          1) Yes, the sale price will carry the %return for 30 days on a pro rata basis
          2) The long-term bond is bought with an intent of receiving cash flow from coupon rates.

  19. Uday says:

    Are 91 days T-Bills are tax-free? if it’s tax-free, In a year how many times I can invest in that? and what will be ROI on that?

    • Karthik Rangappa says:

      They are taxed like the way fixed income funds are taxed. This also means you can avail the benefit of indexation. You can invest in t-bills as many times as you want. No restriction on that.

  20. Ashish says:

    When interest paid? is there any fix date?

  21. Nitin says:

    How to know if the particular Bill/Bond is available at discount/Par/Premium on the platform.

    • Karthik Rangappa says:

      As retail participants, we are price takers. Remember this is a non-competitive bidding, hence it would be difficult to ascertain if the bond will be priced at PAR or discount.

  22. KUNJAN says:

    Do you provide margin against T bill held zerodha? If yes than how much?

  23. Sathya says:

    Can we know the brokerage charged for this T-bills and Bonds?

  24. Sudeep H S says:


    Can you tell will be there be MTM of government securities (bonds) basis closing price if these bonds every day. Bcos if there is a -ve MTM then there will be loss if holder decides to sell. Thanks

  25. Sudheendra says:

    I placed an Order for 184 T Bill but I do not see that now , where can i track the Orders I do not see anything on the coin/gsec page

  26. Tejas says:

    1.on maturity of 10 years g sec principal repayment happens to bank account or trading account? case of accidenttal death of g sec holder are these bonds transferred to nominee of demat account ?
    If yes can nominee able to sale bond or hold till maturity

    • Karthik Rangappa says:

      1) Bank account. The government debits the bond from your DEMAT, this is called ‘Extinguishment of Securities’.
      2) Yes for both.

  27. Harish says:

    Hi Karthik,

    I need to understand more on the secondary market.

    Let’s say I bought a bond which will mature in 10 years from now for 10,000. I hold it for 2 years and get the interest amount semi-annually. After 2 years I want to sell the bond in secondary market, but why would anybody buy it for higher price than 10,000 and get back only 10,000 after maturity ? Instead they would prefer to buy a new bond , right?
    I mean in stocks, if the company is doing well ( plus other market factors) the stock price goes up. What are the factors here that contributes for the bond price to go up ?

    • Karthik Rangappa says:

      Harish, the prices of bonds are market driven, just like the way the price of the stock does. The fluctuating price makes the yields attractive/unattractive to investors and therefore. Interest rates play a huge role in determining the price of the bond.

  28. Shalem Raju says:

    With this said, can clients apply for IPO through Zerodha any soon? Asking as there is a bidding process going in this flow.

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