the securities issued by central government, state government, semi-government bodies, port trusts, public-sector undertaking and financial institutions like IDBI, state financial corporations etc. are known as government securities or gilt-edged securities. The government issues securities to meet its short-term and long-term fund requirements.The Central Government securities prevailing in India are Gold Bonds, National Defence Bends and Rural Development Bonds. funds mobilised through government bonds comprises of 80% of the total funds mobilised in the capital market. They are considered safest regarding repayment of principal and payment of interest.
FEATURES OF GOVERNMENT SECURITIES –
- Sold by Reserve Bank of India: The Reserve Bank of India or any other commercial bank authorised by the government can sell and purchase government securities in the market.
- Marketable debt instrument: these are marketable debt instrument as it could be bought and sold freely among investors.
- Fixed rate of interest: Government securities bear a fixed-rate of interest.
- A volume of transaction: the face value of government securities is generally higher than corporate securities. generally, they bear a minimum face value of Rs.1000. these securities are traded in a very large scale.
- Safe: investment in Government securities are safe as there are no chances of default.
- Form of issue: Government securities are mainly issued in the form of Promissory notes, bearer bonds, or stock certificates.
- Purpose of Issue: Government securities are issued with the following motives: (i) meeting fresh cash requirement of government. (ii) to raise fund for repayment of old securities. (iii) for advance refunding of securities.
- Concession in income tax: interest received on government securities is exempt upto a certain amount under section 80L.
- Major Investors: major investors in the government securities market are predominantly institutional investors which statutorily required to invest certain portion of their funds in government securities. Since 2001 individual investors are also permitted to invest in government securities.
- Method of issue: Government securities are issued through public debt department of RBI or banks authorised by RBI.
- Rate of interest: Rate of interest on government securities are generally lower than corporate securities.