what is government security?
A Government security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government's debt obligation. The G-Sec market in India is one of the most vibrant and active debt markets in the world. The Reserve Bank of India (RBI) is the regulator of the G-Sec market.The G-Sec market comprises of two segments viz., primary and secondary. In the primary market, new securities are issued through auctions conducted by RBI on behalf of the Government. The secondary market comprises of trading in already issued G-Secs between investors. RBI manages the liquidity in the G-Sec market through OMOs (Open Market Operations).
G-Secs are classified on the basis of maturity into three categories:
(i) Treasury Bills (T-Bills),
(ii) Dated Securities, and
(iii) State Development Loans (SDLs). T-Bills have maturities ranging from 91 days to 364 days. Dated securities have maturities of more than one year. SDLs are state government securities with maturities ranging from 5 to 10 years.
G-Secs are also classified on the basis of residuality into two categories:
(i) Zero Coupon Bonds (ZCBs), and
(ii) Coupon Bearing Bonds (CBBs). ZCBs do
Types Of Government Securities In India
Government securities are investment products issued by the both central and state government of India in the form of bonds, treasury bills, or notes. The central government issues securities to finance its budgetary deficits, whereas state governments issue securities to raise resources for meeting their development expenditure. Government securities are classified into two broad categories: Central Government Securities (CGS) and State Government Securities (SGS). CGS includes treasury bills, dated securities, and market stabilization scheme instruments. SGS include state development loans (SDLs), state infrastructure bonds (SIBs), and state housing loans (SHLs). Government securities offer a variety of benefits to investors. They are backed by the full faith and credit of the issuing government, and therefore offer low credit risk. They also offer relatively higher returns than other fixed-income instruments such as bank deposits. Moreover, they provide an avenue for diversifying one's portfolio, as they are not highly correlated with other asset classes such as equity or real estate. However, government securities are not without risks. The most significant risk is interest rate risk, as bond prices and yields move in opposite directions. An increase in interest rates will lead to a fall in bond prices, and vice versa. There is also reinvestment risk associated with bonds, as investors may have to reinvest their principal and interest payments at lower rates if interest rates fall during the tenure of the bond.
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