ALL ABOUT GOVERNMENT BONDS AND IS IT BEST FOR INVESTMENT
                     ALL ABOUT GOVERNMENT 
BONDS AND IS IT BEST 
FOR INVESTMENT?
WHAT IS A GOVERNMENT BOND?
• A government bond represents debt that is issued by a government and sold to 
investors to support government spending.
• Some government bonds may pay periodic interest payments. Other government 
bonds do not pay coupons and are sold at a discount instead.
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LOW-RISK INVESTMENTS
• Government bonds are considered low-risk investments since the government backs 
them. There are various types of bonds that are offered by the U.S. Treasury are 
considered to be among the safest in the world.
• Because of their relative low risk, government bonds typically pay low interest rates.
Source: The Economic Times
FIXED-RATE BONDS
• Government bonds of this nature come with a fixed rate of interest which remains 
constant throughout the tenure of investment irrespective of fluctuating market rates.
• The coupon on a Government Bond is mentioned in nomenclature. For instance, 7% 
GOI 2021 means the following.
Source: Alamy
FLOATING RATE BONDS (FRBS)
• FRBs are subject to periodic changes in rate of returns. The change in rates is 
undertaken at intervals which are declared beforehand during the issuance of such 
bonds. 
• There is another variant to FRBs, wherein the rate of interest rate is bifurcated into 
two components: a base rate and a fixed spread.
Source: The Economic Times
Sovereign Gold Bonds (SGBs)
• The Central Government issues sovereign Gold Bonds, wherein entities can invest in 
gold for an extended period through such bonds, without the burden of investing in 
physical gold. The interest earned on such bonds is exempted from tax.
• Investors seeking liquidity from such bonds shall need to wait for the first five years to 
redeem it.
Source: humfauji.in
INFLATION-INDEXED BONDS
• It is a unique financial instrument, wherein the principal, as well as the interest earned 
on such bond, is accorded with inflation. 
• Mainly issued for retail investors, these bonds are indexed as per the Consumer Price 
Index (CPI) or Wholesale Price Index (WPI). 
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GOI SAVINGS BOND
• This G-Sec was introduced as a replacement to the 8% Savings Bond in 2018. As 
noted from its nomenclature, the interest rate of such bonds is set at 7.75%. 
• Interest earnings from such bonds are taxable under the Income Tax Act 1961 as per 
the investors’ applicable income tax slab. 
Source: The Economic Times
BONDS WITH CALL OR PUT 
OPTION
• The distinguishing feature of this type of bonds is the issuer enjoys the right to buy-
back such bonds (call option) or the investor can exercise its right to sell (put option) 
them to such issuer. 
• Investors can sell such bonds to the issuer at face value. This ensures the 
preservation of the corpus invested in case of any downturn of the stock market.
Source: Motilal Oswal
ZERO-COUPON BONDS
• As the name suggests, Zero-Coupon Bonds do not earn any interest. Earnings from 
Zero-Coupon Bonds arise from the difference in issuance price (at a discount) and 
redemption value (at par). 
• This type of bonds are not issued through auction but rather created from existing 
securities.
Source: Investment FAQ
ADVANTAGES OF INVESTING IN 
GOVERNMENT BONDS? 
• Sovereign Guarantee 
– Government Bonds enjoy a premium status with respect to the stability of funds and promise of assured 
returns. 
• Inflation-adjusted 
– Balances held in Inflation-Indexed Bonds are adjusted against increasing average price level.
• Regular source of income
– As per RBI regulations, interest earnings accrued on Government Bonds are supposed to be disbursed every 
six months to such debt holders.
Source: Zee Business
DISADVANTAGES OF INVESTING IN 
GOVERNMENT BONDS? 
• Low Income
– Other than 7.75% GOI Savings Bond, interest earnings on other types of bonds are relatively lower.
• Loss of relevancy
– As Government Bonds are long-term investment options with maturity tenure ranging from 5 – 40 years, it can 
lose relevancy over time. It means such bonds value loses relevance in the face of inflation, barring IIBs and 
Capital Indexed Bonds.
Source: Investopedia
WHO SHOULD INVEST IN 
GOVERNMENT BONDS?
• Government Bonds are one of the most secure forms of investment in India attributed 
to its Sovereign guarantee. 
• Risk-averse investors who prefer superlative security of their investments devoid of 
uncertainty created present in market-linked instruments can look to invest in this type 
of securities. 
• It is also a suitable long term investment option for entities that do not have experience 
in investing in stock market tools.
Source:Moneycontrol