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What are Government Bonds in India?

A government bond, also known as Government Securities or G-Sec, is a debt instrument issued by the Central and State Governments of India. Read to know what government bond is and its types and advantages.

  • Nov 17, 2022

You can invest your money in Indian markets in various ways. One of the most popular ways to do so is through government bonds. These are debt instruments available in multiple forms, including certificates and agreements issued by the Government of India to the individual/organization against the borrowed fund.

Indian government sell these bonds to fund its operations for various developmental purposes like infrastructure, education, medical, etc.

In this article, we will discuss what government bonds in India are and the meaning of government bonds with examples. In addition, we will also look at what government bonds in India are used for, their interest rates, etc., among other essential details.

What is Government Bond?

To understand the meaning of government bonds in India, you must first understand what a bond is. According to the RBI website, a bond is a debt instrument. An investor loans their money to an entity (Government or Private) using these instruments. The entity borrows these funds at a fixed or variable interest rate for a fixed tenure. It is then used by private and government bodies like companies, municipal corporations, and sovereign governments to fund various projects and activities. The bond ownership stays with the creditors or debt holders of the entity that has issued the bond.

Now that you know the meaning of a bond, let’s understand what a government bond is.

A government bond, also known as Government Securities or G-Sec, is a tradable financial instrument issued by the Central Government or the State Government. The bonds acknowledge/recognize the government’s debt obligation towards the lender.

The RBI suggests the tenure of such government securities is a short-term investment (Treasury bills, with a maturity of less than a year) or long-term investment (dated securities or government bonds in India, with a maturity of one or more years) based on the type of government bond.

The Central Government of India issues treasury bills and dated securities/bonds. In contrast, the State Government only issues date securities/bonds known as State Development Loans (SDLs). Government securities practically have no risk of default involved and thus are known as risk-free gilt-edged (highly reliable) investment instruments.

Government bonds are generally considered an expensive category of government securities. These G-Sec bonds are long-term investment tools and are issued for a tenure ranging from 5 to 40 years.

The G-Secs was issued to target large investors like corporations to private commercial banks. However, now the government has made provisions for the G-Secs accessible to smaller investors like individual investors and cooperative banks.

Types of Government Bonds

The central and state governments issue a wider variety of government bonds in India. Let’s briefly discuss the different types of Government Bonds.

Fixed-rate Bond

The interest rate on this type of government bond is fixed through the whole tenure of investment, regardless of the fluctuating market.

Floating Rate Bond

These government bonds are variable and are based on the regular changes experienced by the rate of return. The interval in which the changes will occur is pre-defined at the bond issuance time.

Sovereign Gold Bond (SGBs)

Under this type of government bond, the investment entity can invest in digital gold for an extended tenure without possessing the gold in physical form. The proceeds and interest generated on these types of bonds are tax-free. The price of these bonds resembles those of physical gold.

Inflation-Indexed Bond

This type of government bond serves as a unique financial tool. The principal and interest earned on these bonds are in accordance with the market inflation. Generally, these bonds are issued for retail investors and indexed as per the wholesale price index (WPI) or consumer price index (CPI).

The 7.75% GoI Savings Bond

The G-Sec was launched to replace the 8% savings bond in the year 2018. The interest rate on these bonds is 7.75%, as the name suggests. Per the RBI guidelines, these bonds can only be possessed by individuals who meet the following criteria.

-Not an NRI

-Not a Minor

-Not a HUF (Hindu Undivided Family)

The interest earned on these bonds is taxable per the Income Tax Act in accordance with the IT tax slab on the investor.

Call or Put Option Bond

These bonds provide the right to buy back to the bond issuer. The issuer of such bonds can use a call option to buy back the bonds. At the same time, the investors also enjoy the right to sell this type of bond at any time by using the put option.

Zero-Coupon Bond

In this type of government bond, the investor does not earn interest; instead, the returns are made based on issuance and redemption values.

Advantages of investing in Government Bonds


Government bond buyers are assured of rewards and financial security. The standard for risk-free security has always been set by them. Therefore, investors looking for a risk-free investment should consider purchasing government bonds.


Returns on government bonds in India often match those on bank deposits. The principal and fixed interest are both guaranteed. Compared to bank deposits, these bonds are available for a longer period of time.


In India, government bonds in India are traded similarly to stock assets. The liquidity of these bonds is equivalent to that of banks and other financial institutions.

Portfolio Diversification

For the investor, a portfolio with holdings in government bonds is well-diversified. As risk-free investments, government bonds help to lower the overall portfolio’s risk.

Regular Income

Indian government bondholders are required to receive interest payments every six months in accordance with RBI regulations. As a result, it offers bondholders the opportunity to invest their extra cash and generate a consistent income.


If you want to make a safe and reliable investment without any risk, then the G-secs are the best option in the market. These highly reliable government bonds in India are a safe investment option and offer a great return on investment. However, experts advise that one read the documents related to the guidelines of investment in bonds very carefully before purchasing them. You must also analyze the pros and cons of government bonds and invest in them per your financial requirements and goals.

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