Features of government securities:
The government securities are issued by the central government, state governments, and semi-government authorities like municipal corporations and municipalities, autonomous institutions like the port trusts, improvement trusts, state electricity boards, metropolitan authorities, public sector corporations, and government agencies such as the Industrial Development Bank of India (IDBI), State Financial Corporations (SFCs), State Industrial Development Corporations (SIDCs), National Bank for Agriculture & Rural Development (NABARD), housing boards, etc.
Individuals, firms, companies, corporate bodies, institutions, state governments, provident funds and trusts are allowed to invest in government securities. The Non-resident Indians, overseas corporate bodies and Foreign Institutional Investors (FIIs) registered with SEBI and approved by RBI are also eligible to invest in government securities. Though different segments are permitted to invest, commercial banks, insurance companies and Non-Banking Financial Companies (NBFCs) are the major buyers of gilts in the market.
Government securities play a vital role in the open market operations conducted by the Central Bank of the country. These instruments facilitate implementation of the fiscal policy of the government. The major investors such as commercial banks, NBFCs, insurance companies hold GOI securities to meet their statutory requirements. In spite of low yields, they are bound to invest in these bonds.
The minimum amount of investment in government securities for a single investor is Rs.10,000 (face value) and in multiples thereof.
The government securities are issued with various maturity periods. These were issued with maturities ranging from 2 to 31 years since independence. In the early 90s the average maturity period was shortened to 10 years by the RBI. At present, government securities run with a tenure upto 20 years in the market. They can be classified into three categories depending upon their maturities viz., long-dated, medium-dated and short-dated. Long-dated securities have maturities exceeding 10 years from the issue date, medium-dated securities have maturities ranging from 5 to 10 years and short-dated securities mature within 5 years.