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Thread on Government Securities (G-Sec)🧵
Topics:
- What are Bonds?
- Government Bond types
- Why I preferred G-sec☺️
- How to invest in G-sec?
- How interest payout works in G-sec?
- Things to consider while buying G-Sec in Secondary Market
- Taxation on Bonds
- Key Takeaways
Topics:
- What are Bonds?
- Government Bond types
- Why I preferred G-sec☺️
- How to invest in G-sec?
- How interest payout works in G-sec?
- Things to consider while buying G-Sec in Secondary Market
- Taxation on Bonds
- Key Takeaways
1. What are Bonds?
- These are fixed income debt instruments issued by the central/state governments.
- Like how we take Loans from Banks, Government raises money by taking loan from us via Bonds.
- Every bond has a two components associated: Interest component & Maturity Date.
- These are fixed income debt instruments issued by the central/state governments.
- Like how we take Loans from Banks, Government raises money by taking loan from us via Bonds.
- Every bond has a two components associated: Interest component & Maturity Date.
- Government would pay this much interest every year until the maturity date.
- They are risk free investments, as they are borne by Government❤️
2. Government Bond Types:
They are 3 types:
Treasury Bills (T-Bills), Government Securities (G-Sec) & State Development Loans (SDLs)
- They are risk free investments, as they are borne by Government❤️
2. Government Bond Types:
They are 3 types:
Treasury Bills (T-Bills), Government Securities (G-Sec) & State Development Loans (SDLs)
2.1 T-Bills:
- These are short term bonds issues by Central Government
- Maturity can be: 91 days, 182 days Or 364 days
- They will be issued at the discounted value.
Let's understand this with an Example👇
Say, bond value is Rs.100, which has maturity of 91 days.
- These are short term bonds issues by Central Government
- Maturity can be: 91 days, 182 days Or 364 days
- They will be issued at the discounted value.
Let's understand this with an Example👇
Say, bond value is Rs.100, which has maturity of 91 days.
Instead of buying it at 100, they will be available at discounted price say Rs.97.
Then it’s at discounted price of Rs.3 & will be redeemed at face value of Rs.100 itself.
So, we will buy at low & sell at high. Hence returns will be guaranteed at higher value☺️
Then it’s at discounted price of Rs.3 & will be redeemed at face value of Rs.100 itself.
So, we will buy at low & sell at high. Hence returns will be guaranteed at higher value☺️
In this example, Yield is: 12.4502%.
- Yield Formula = [Discount Value]/[Bond Price] *
[365/number of days to maturity]
= [3/97]*[365/91]
= 0.0309*4.010989
=12.4052%
- These can be brought using D-mat account with brokers.
- Yield Formula = [Discount Value]/[Bond Price] *
[365/number of days to maturity]
= [3/97]*[365/91]
= 0.0309*4.010989
=12.4052%
- These can be brought using D-mat account with brokers.
- They will be available to buy on Monday.
- Upon maturity amount will be payed back to Bank account which is linked to D-mat account.
- They can’t be pledged for trading!
2.2 Government Securities (G-Sec):
- These are long term goals issues by Central Government
- Upon maturity amount will be payed back to Bank account which is linked to D-mat account.
- They can’t be pledged for trading!
2.2 Government Securities (G-Sec):
- These are long term goals issues by Central Government
- Face value of each unit is Rs.100, based on this interest will be paid.
- Unlike T-Bills, these will not be available at discounted price, instead Government will pay interest on half yearly basis. That way we get returns.
- Minimum amount of issue/sale is Rs.10,000.
- Unlike T-Bills, these will not be available at discounted price, instead Government will pay interest on half yearly basis. That way we get returns.
- Minimum amount of issue/sale is Rs.10,000.
- Every G-Sec will be like this: 740GS2035A.
In this example:
Annualized interest – 7.40%
Type – Government Securities (GS)
Maturity – 2035
- In this example, government will pay half yearly interest of 3.7% until the maturity☺️
In this example:
Annualized interest – 7.40%
Type – Government Securities (GS)
Maturity – 2035
- In this example, government will pay half yearly interest of 3.7% until the maturity☺️
- They act like Like a fixed income source until bond maturity😎💪
- Not a compounded growth of 7.4%.
- If we want compounded growth, then we need to re-invest back the received interest amount onto same G-Sec, like we do re-invest back dividend income of shares🙏
- Not a compounded growth of 7.4%.
- If we want compounded growth, then we need to re-invest back the received interest amount onto same G-Sec, like we do re-invest back dividend income of shares🙏
2.3 State Development Loans (SDLs):
- These are issues by State Government
- These are long term bonds
- They will be available to buy on Monday
- They can’t be pledged for trading!
- These are issues by State Government
- These are long term bonds
- They will be available to buy on Monday
- They can’t be pledged for trading!
3. Why I Preferred G-Secs😎
- Because they can be pledged for trading🎉❤️
- Also, they are cash equivalent components! So that, if I want to take positional trades, I don’t have to keep cash in D-mat account, to meet 50:50 rule💪
- Because they can be pledged for trading🎉❤️
- Also, they are cash equivalent components! So that, if I want to take positional trades, I don’t have to keep cash in D-mat account, to meet 50:50 rule💪
- Since returns are around 7%, it’s a great investment to diversify also☺️
4. How to Invest in G-Secs:
- These can be brought using Dmat account with brokers.
- They will be available to buy on Tuesday in Zerodha Coin
- They can also be brought with secondary market directly.
4. How to Invest in G-Secs:
- These can be brought using Dmat account with brokers.
- They will be available to buy on Tuesday in Zerodha Coin
- They can also be brought with secondary market directly.
- We can buy on all days in Secondary market☺️
- Secondary market is nothing but our brokerage terminals. In my case it's Zerodha Kite.
- In Zerodha Kite, search something like GS3026, then list will be populated with all G-Secs of 2036.
Check the picture attached here👇
- Secondary market is nothing but our brokerage terminals. In my case it's Zerodha Kite.
- In Zerodha Kite, search something like GS3026, then list will be populated with all G-Secs of 2036.
Check the picture attached here👇
- Then based on good liquidity, we can buy specific G-Sec.
- Liquidity can be checked using this link:
nseindia.com/market-data/bo…
Check the picture attached for reference👇
- In this case, 754GS2036 has highest liquidity.
- Then we can buy this 754GS2036 in our brokers system.
- Liquidity can be checked using this link:
nseindia.com/market-data/bo…
Check the picture attached for reference👇
- In this case, 754GS2036 has highest liquidity.
- Then we can buy this 754GS2036 in our brokers system.
- Advantage of buying on Secondary market is, so that we can exit them before the maturity☺️
- When buying in Secondary market, make sure to check the liquidity of the G-Sec. If liquidity is less, then exit will be difficult😐 But we would still interest received half yearly.
- When buying in Secondary market, make sure to check the liquidity of the G-Sec. If liquidity is less, then exit will be difficult😐 But we would still interest received half yearly.
5. How Interest payout Works in G-Sec?
- Interest will be paid for the face value of the each unit, say Rs.100.
- Interest will be paid every once in 6 months
- Government pays interest for face value of Rs.100
To understand this, consider the example attached👇
- Interest will be paid for the face value of the each unit, say Rs.100.
- Interest will be paid every once in 6 months
- Government pays interest for face value of Rs.100
To understand this, consider the example attached👇
As u observe, interest amount is same in both cases, but to receive same interest👇
Face value with Rs.100 require less capital compared to face value with Rs.105.
6. Things to consider while buying G-Sec in Secondary Market👇
- Check the liquidity of G-Sec.
Face value with Rs.100 require less capital compared to face value with Rs.105.
6. Things to consider while buying G-Sec in Secondary Market👇
- Check the liquidity of G-Sec.
- If liquidity is good, then we can exit them before maturity if we want☺️
- Is it available in discounted price? If so, then better!😃
7. Taxation On Bonds:
- Interest received will be considered as Income From other sources due to STGC (Short Term Capital Gain)😐
- Is it available in discounted price? If so, then better!😃
7. Taxation On Bonds:
- Interest received will be considered as Income From other sources due to STGC (Short Term Capital Gain)😐
- So based on in come income tax slab, one has to pay tax accordingly🙏
- If the maturity of Bonds is more than 3 years, then it is eligible for LTCG (Long Term Capital Gain)
- If the maturity of Bonds is more than 3 years, then it is eligible for LTCG (Long Term Capital Gain)
8. Key Takeaways:
- Bonds are best alternatives to diversify our capital, as they are secured🙏
- If you are a profitable trader, then G-Secs are better alternatives to Liquid Bees/Funds to park our cash, as returns are higher & also we can pledge them as Cash Equivalents🎉☺️
- Bonds are best alternatives to diversify our capital, as they are secured🙏
- If you are a profitable trader, then G-Secs are better alternatives to Liquid Bees/Funds to park our cash, as returns are higher & also we can pledge them as Cash Equivalents🎉☺️
- T Bills can be opted to get higher returns within short term
- G-Secs are for Long Term investment & here interest will be payed our by Government half yearly☺️
- Advantage of buying G-Sec in secondary market is, we can exit them before maturity.
- G-Secs are for Long Term investment & here interest will be payed our by Government half yearly☺️
- Advantage of buying G-Sec in secondary market is, we can exit them before maturity.
Some of the useful links👇
- Interest payout dates for gases:
tradingqna.com/t/interest-pay…
- Zerodha Varsity:
zerodha.com/varsity/chapte…
- Outstanding Bonds List:
rbi.org.in/scripts/bs_vie…
- Article on G-secs by RBI:
rbi.org.in/commonman/Engl…
- G-sec liquidity:
nseindia.com/market-data/bo…
- Interest payout dates for gases:
tradingqna.com/t/interest-pay…
- Zerodha Varsity:
zerodha.com/varsity/chapte…
- Outstanding Bonds List:
rbi.org.in/scripts/bs_vie…
- Article on G-secs by RBI:
rbi.org.in/commonman/Engl…
- G-sec liquidity:
nseindia.com/market-data/bo…
That's all from this thread!
Whatever I know based on recent studied have penned down here☺️
Still this concept is vast, can refer above links for more information.
Request to Like & Re-Tweet for maximum reach🙏
#Gsec #GovernmentBonds #BondsVsLiquidFunds #CashCollateral
Whatever I know based on recent studied have penned down here☺️
Still this concept is vast, can refer above links for more information.
Request to Like & Re-Tweet for maximum reach🙏
#Gsec #GovernmentBonds #BondsVsLiquidFunds #CashCollateral
In 5th point, added a wrong value for interest amount. It's Rs.3750 Not Rs. 37,500🙏
This is that link:
There is the correct value👇
This is that link:
https://twitter.com/OptionInversion/status/1670015236869619713?s=20
There is the correct value👇
In 5th point, there was wrong interest calculation shown in the table.
Link:
This is the correct value of the interest: Rs.3750
Link:
https://twitter.com/OptionInversion/status/1670015236869619713?s=20
This is the correct value of the interest: Rs.3750
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