Government Bonds in India | Types, Advantages, and How to Invest (2024)

FAQs

Which government bonds are best to invest in India? ›

Types of Government Bonds in India

GOI Savings Bond: Offering a current interest rate of 8.05% till 31st December 2023, the GOI Savings Bonds are backed by the government, making them a stable and reliable investment. These bonds are ideal for those focused on capital preservation and desiring a steady income stream.

Advantages of Investing in Government Bonds

Here are the key benefits of the best government bonds to buy: Safety and Security: Government bonds are considered one of the safest investment options in India. They are backed by the sovereign guarantee of the Indian government, which signifies a very low risk of default.

Investment Bonds are debt instruments in which the authorized issuer owes the bond holders a debt. Depending on the terms of the type of bonds, the authorized issuer is obliged to pay interest and/or repay the principal at a later date upon maturity.

How do I choose the best bonds for my portfolio? To select the best bonds for your portfolio in the Indian market, consider the issuer's credit rating, offered yield, maturity period, and prevailing market conditions.

The popular tax-free bonds in India are typically those issued by government-backed enterprises such as the National Highways Authority of India (NHAI), Indian Railway Finance Corporation (IRFC), and the Housing and Urban Development Corporation (HUDCO).

Taxation of Bonds in India

Bonds are taxed in India depending on two key factors i.e., the type of bond and its holding period. Both interest and capital gains on bonds attract tax as below: Interest: The interest income on bonds is taxed as per your income tax slab by adding it to your total income.

Both bonds and notes pay interest every six months.

Savings Bonds are guaranteed by the Government of India:

Savings Bonds have a sovereign guarantee. This means the Government is obligated to return the amount you invested on maturity. This makes the 7.75% Government of India Savings Bond a very safe investment option.

How do government bonds work in India? ›

G Secs Bonds or Government Securities are long-term debt instruments issued by the Government of India through auctions conducted by the Reserve Bank of India (RBI). They come with different maturities ranging from short term government bonds (less than one year) to long-term (up to 40 years).

Bonds issued by the Central and State Governments are called Government security. Since these are issued by Governments they carry no credit risk. These are one of the safest types of Investment options in India to earn periodic interests and principal on maturity. These bonds pay interest on semi-annual basis.

The 7.75% Government of India (GOI) savings bond has a set annual interest rate of 7.75% that is payable every six months. It has a 7-year maturity period and offers a comparatively high and stable interest rate when compared to many other fixed-income products.

For example, Savings bonds in India have no maximum bond investment limit but they do have a minimum bond investment limit of Rs 1000. The investments can be increased to multiples of Rs 1000.

Government bonds are considered low-risk investments. However, they come with some level of risk that investors need to be aware of. While treasury bills are considered risk-free investments, they still come with risks such as interest rate risk, inflation risk, and reinvestment risk.

Government Securities

Bonds issued by the Central and State Governments are called Government security. Since these are issued by Governments they carry no credit risk. These are one of the safest types of Investment options in India to earn periodic interests and principal on maturity.