Merits and Demerits of Government securities

MERITS OF GOVERNMENT SECURITIES :

  1. Zero risk: Government securities are free from any risk as there are no chances of default and government assures payment of principal along with interest.
  2. interest is paid regularly: in government bonds interest is paid at regular intervals generally half yearly or quarterly.
  3. Liquidity: government securities can be bought and sold regularly and can be instantly converted into cash.
  4. Tax exemptions: there is tax relief on the interest earned on government securities.
  5. Assured interest for long period of time.

DEMERITS OF GOVERNMENT SECURITIES:

  1. If interest rate rises in the future investor may lose: if market rates of interest rises in the future, th investor will have to suffer losses as his money is blocke  in a fixed rate government security.
  2. Rate of return is lowwer: we aready discussed that rate of return in
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