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Government securities (G-secs): types and how they work
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Government securities (G-secs), also called gilt-edged securities, are tradable debt instruments issued by the Central Government or a state government to borrow money. They carry the sovereign's promise to pay, so they are considered free of default risk. The RBI manages the public debt of the Centre and the states, which includes running the auctions.
Types
| Type | Issuer | Features |
|---|---|---|
| Treasury bills | Centre | Under one year, issued at a discount, no coupon |
| Dated G-secs | Centre | Fixed or floating coupon, with maturities up to about 40 years, interest usually paid half-yearly |
| State development loans (SDLs) | States | Dated securities issued by state governments |
| Inflation-indexed bonds | Centre | Returns linked to an inflation index |
| Sovereign gold bonds | Centre | Linked to the price of gold, issued in the past in tranches |
Price and yield
When a bond's market price rises, its yield falls, and when the price falls, the yield rises. If a 10-year bond with a 7% coupon and face value ₹100 trades at ₹95, a buyer earns the coupon on ₹100 plus a gain at maturity, so the yield is above 7%. The yield on the benchmark 10-year G-sec is closely watched as a measure of long-term interest rates. A big government borrowing programme, as in a large fiscal deficit, can push yields up.
Who buys them
Banks are the largest buyers, because they must hold G-secs and other approved assets to meet the SLR. Insurers, provident funds, mutual funds and primary dealers also hold them. Since 2021, retail investors can buy directly through the RBI Retail Direct platform. The RBI buys and sells them through open market operations to manage liquidity.
How bank exams ask about it
Look for "gilt-edged securities", the difference between T-bills and dated securities, "SDLs are issued by", and the price-yield relationship. Another stem asks which regulator oversees the government securities market (the RBI, not SEBI). The money market (up to one year) versus capital market split is also a favourite. Cover it with the other instruments in banking awareness.
Where to check
Auction calendars, results and market data are on rbi.org.in. Do not rely on a yield figure from an old note.
Frequently asked questions
Why are G-secs called gilt-edged?
The term suggests a very safe investment, since the government backs repayment.
Can an individual invest in G-secs?
Yes. Retail investors can open a gilt account with the RBI through Retail Direct, or invest through banks and other intermediaries.
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