Bonds make for great investment instruments and of the two types of bonds; government and corporate bonds, government bonds are considered less risky.
Government bonds can be issued by different governments at different levels. In India, both the Central and State Governments issue bonds when they require capital to develop the infrastructure of the country.
Here’s a look at everything you need to know about government bonds and the top 10 government bonds in India that you should take into account when you are looking to invest in these bonds.
Types of Government Bonds
There are quite a few varieties of government bonds in India that have been categorised based on the government’s bond issuance:
1. Fixed Interest Bonds:
- Guarantee that investors receive a steady income till the bond’s maturity
- The returns are not dependent on market volatility as the interest rate in these bonds is locked and cannot be altered.
2. Inflation-linked Returns:
- With rising inflation the price of the principal and interest both rise
- These government bonds however make for a great way to protect the return that investors earn.
3. GOI Savings Bond:
- The GOI Savings bond is backed by the government.
- The bond’s current interest rate stands at 8.05% till 30th June, 2024
- These bonds are dependable and offer a steady income flow
4. Callable and Puttable Bonds:
- These bonds have a built-in option for early termination
- Callable bonds let issuers repay the entire bond before its maturity
- Puttable bonds let investors sell the bond back, providing them with a good option in case the market is volatile.
5. Bonds with Zero Coupon:
- Such government bonds are purchased for below their face value
- These bonds provide the investor with a lump sum payout that includes the accumulated interest
- However, because of this, no interest payment regularly is available.
6. Gold Investments:
- These bonds are a digital gold investment
- They provide the investors with the same benefits as an investment in real gold would
Benefits of Investing in Government Bonds
To help you decide whether or not to invest in government bonds, here is a list of some of the benefits it has in store for its investors.
1. Stability:
- Since these bond finance are backed by the government, they happen to be very stable.
- They also come with a comparatively low default risk.
2. Regular income:
- Bonds come with regular interest payout offering a regular income too its investors.
- Government bonds, usually pay interest payouts biannually or annually.
3. Tax Exemptions:
- If you do your research, you will also come across government bonds that provide tax exemptions. On the interest earned.
4. Ease of Trade:
- Since government bonds usually have a secondary market as well, the whole process of buying and selling them becomes easier.
List of the Top 10 Government Bonds in India
|
Bond Issuer |
Coupon Rate |
Yield |
Credit Rating |
|
Tamil Nadu Generation and Distribution Corporation Limited |
9.72% |
13.50% |
A |
|
Karnataka State Financial Corporation |
9.24% |
12.08% |
AA |
|
West Bengal State Electricity Distribution Company Ltd |
9.34% |
11.95% |
A |
|
Indel Money Limited |
0% |
11.88% |
BBB |
|
Punjab Infrastructure Development Board |
0.40% |
11.70% |
BBB |
|
Rajasthan State Road Transport Corporation |
10.25% |
11.55% |
BB+ |
|
Rajasthan Rajya Vidyut Prasaran Nigam Ltd |
0% |
11% |
A |
|
Tamil Nadu Generation and Distribution Corporation Limited (Different Bond) |
10% |
10.73% |
A |
|
West Bengal State Electricity Distribution Company Ltd (Different Bond) |
10.85% |
10.71% |
A |
|
Greater Hyderabad Municipal Corporation |
9.38% |
10.55% |
AA |
Conclusion
Government bonds can prove to be an exceptionally great form of investing in a low-risk, government-backed option that can help investors earn a regular passive income.
Some bonds also happen to give tax exemptions on the interest earned through them making them more profitable.
However, it is important to know all aspects of these government bonds to recognize which ones to invest in to generate higher returns.