How to Buy RBI bonds in India?

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Anything that comes out of the Government office is valued the most. Any job or investment opportunities try to provide an interesting opportunity for a competitive payout. History has it that every time someone needed a companion, the first prerequisite was to tick the “Government Job” off the list, as it ensured a lot of things. Most importantly, job security and holidays. It didn’t matter what you did in the office, the tag of approval was enough to garner respect among folks and relatives. Anything else was looked down upon.
Compared to private sector, competition, and job pressure within government jobs is lesser than private companies. We sure have heard stories of someone just going to work and coming home every day with no complaints. You leave your work stress at your office desk every day and get paid on the same date and bring home goodies every festival. Within no time, people working government jobs have a house of their own, a four-wheel drive, and is already planning holidays. All this plus gratuity and pension after retirement.
Private companies run out of money. They might not have anything to offer after a while, leading to curtailments, but government jobs ensure you are in good hands, and it will ensure you are being provided for the day you get in. You will have a roof over you in the government quarters and first priority during health emergencies. Cost is subsidized. You save more. You get to spend more time with your family. Not only that, but you can take chances and invest in different places.
Government bonds make an excellent candidate for investments because the government issues them to take care of the various needs of development. They come with assured returns and perks that we will learn in this blog.

What are RBI Bonds?

RBI bonds are issued by the Reserve Bank of India on the behest of the government. This kind of bonds is also known as GOI Tax saving bonds. They are among other securities issued by the GOI to bear-sized investors, such as commercial banks and companies or individuals. In the last few years, the Government has opened the gates for individual investors and corporates to invest.
Government issue bonds to fulfil their developmental needs pertaining to infrastructure, operations, or to fund their new project.
Bonds are debt-instruments that an investor earns fixed interests on while also preserving their capital until maturity. The interest and tenure are pre-determined. The chances of default of delay in interest payments are close to zilch because bonds are backed by the government.
Government bonds are also known as G-Secs and offer an investment tenure ranging from one year to forty years. There are different types of government bonds that benefit investors and their varying needs.

Also Read- Why you should invest in India

Types of Government Bonds

types-of-government-bonds

1. RBI Bonds / Floating interest Bonds

RBI Floating rate bonds are true to their names. Most RBI bonds are issued with a floating rate of interest. It is a great source of investment for risk-averse investors. It is decided every six months, depending on the interest rate in the market. Fixed return is, however, not possible because the floating-rate keeps changing regularly.

Things to remember while investing in RBI bonds.

  • Investor cannot use it as a guarantee to apply for loans.
  • The bond cannot be transferred except from transferring it to the nominee.
  • Some banks offer the purchase of the bonds online.
  • Interest on RBI bonds is taxable based on the tax bracket the individual falls in.
  • Face value of the bond is ₹1,000 (i.e, 1 bond). There is no limit to how much you can invest.

2. Zero Coupon Bonds

Zero coupon bonds have no coupon attached. Meaning, the investor is issued the bond at a discount and principal is repaid to investors at maturity. Investors usually invest in these bonds for capital appreciation

3. 7.75% GOI Savings Bonds

As the name suggests, this GOI bond offers an interest rate of 7.75 percent. The interest you earn on these bonds are taxable. With a minimum amount of ₹ 1,000, you can invest in 7.75% bonds.

4. Sovereign Gold Bonds (SGBs)

SGB are government securities which are denominated in gold. SGB are superior alternative of holding physical gold. The risks and cost of storage is eliminated. RBI holds these bonds on behalf of Government of India. These bonds are issued in the denomination of one gram of gold and multiples thereof with a maximum limit of subscription of 4 kg for individuals

5. Inflation Indexed Bonds

Investors who wish to protect their investments from the rising inflation, invest in these bonds. The principal and interest go in correspondence with the inflation.

6. STRIPS

STRIPS stands for Separate Trading of Registered Interest and Principal Securities. Strips are close to zero coupon securities issued by the government. It is a process of separating bonds in to their individual components and coupons.

Benefits of Government Bonds

  • 1. Capital Preservation:
    • A lot of investors who cannot risk losing money choose government bonds because they are the safest form of investments. Government bonds are supported by central government. The money you invest will come back to you at the end of the tenure.
  • 2. Security:
    • Government offer fixed-rate of interest to all investors. There is no risk of losing the principal. Therefore, investors have a security of funds till the time their money stays invested.
  • 3. Diversification:
    • Government bonds provide low-risk opportunities. Therefore, building a well-balanced portfolio for investors. It softens the blow of the impact the volatile stock market has on your other investments.
  • 4. Interest Rates:
    • G-Secs offer a competitive interest .

Also read- How to Make Your Money Work in 2021?

Disadvantages of Government Bonds

  • 1. Connection issue
    • Government bonds loss relevancy over time. Besides a few exceptions, such as capital-indexed and inflation-indexed bond
  • 2. Low returns
    • Government bonds earn lesser interest rates than corporate bonds. Since they offer stability and a safe investment passage, they tend to offer low interest rates. Your investment will produce the market value, which could be lower than the original price of the bond.

Where to buy RBI bonds online

Government bonds are issued by central or the state governments for funding various government projects. There are two places investors can invest in bonds:- Primary Market and Secondary Market.
RBI bonds can be bought either online or offline through private or public banks. Therefore, the purchase is not possible except at banks or entities that are authorized by the GOI.

Notable services that offer the purchase of RBI bonds online.

  • ICICI Bank
  • HDFC Bank
  • IDBI Bank
  • Axis Bank
  • SBI Bank

Primary Market

The primary market is where bonds make their first appearance. The bond is issued straight by the issuer in the primary market. Therefore, the money goes to the issuer. There are no other parties involved.

Secondary Market

Once the bond is issued by the entity, it is free to run its course as per its investors needs. They can sell the bonds to interested buyers. The secondary bond market is a marketplace to ensure trading. Investors trade bonds among them. The secondary bond market consists of brokers, individual investors, and platforms that buy and sell bonds.

How to Purchase RBI bonds?

india-5y-bonds-yield

The graph above shows how the G-SECS have performed in the last five years. Government bonds are the best fit for retired people and those who need to keep their money for safe for a few years. Nowadays, people insist on investing in bonds for diversification and liquidity.

The easiest way to purchase G-Secs is the NSE GoBid application. The bond can be purchased on the app or on their website.

Log into your account and choose the number of securities you wish to buy based on your investment goals, then make the purchase using your preferred payment method. That’s a Bingo!

Minimum investment amount for government bonds is ₹10,000. Government bonds have tenure of 1 to 40 years.

That said, BondsIndia is India’s first blockchain based investment platform for buying and selling of bonds. Feel free to take a look at the bonds section on the website and purchase those that fit your investment goals. Bonds always have an upper hand when it comes to secured investing. We do not deal in G-Secs yet.

How to apply for RBI Bonds in India?
bidding-period-of-nse

Bonds are high-security investment instruments. Making an investment in bonds is easier than before. Earlier, investors had to go through an offline process which would take a good seven-day period to finally acquire bonds. On top of that, small investors were often given the last priority due to the presence of big investors.

Things have changed since the past few years. Under the non-competitive bidding method, small investors can now take part in investing in bonds. Government bonds can be purchased through a simple online process.

You can buy the bond directly from the issuer on their website by uploading your KYC details and making online payments, which is what investors do in the primary market. Most investors also prefer investing in bonds in the secondary market, where bonds get traded in real time and real time price discovery comes into play.

How to sell RBI Bonds in India?

Bond investment are for those who wish to park their funds for a long time to take care of the needs they have planned for the future. However, no two investors are the same. Some might need their funds earlier.

You can search for interested buyers through brokers or directly log on the NSE website. Selling of bonds have been made easy for investors since 2018. You sell the bonds the same way you bought them, only this time you will be selling it in the secondary market.

Also read- Benefits of Bonds in your portfolio

Conclusion

Wherever you invest, make sure you do a thorough research about the issuer and ways you still might end up losing money even if it says that government bonds are safe and most preferred way of capital preservation. There had been cases where the Government had writer-off or cancelled bonds and the investors did end up losing all their money and most of them were individual investors, retired professionals who had put their life-savings in the bond.

Comments

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People confuse RBI bonds with govt bonds. I thought this blog will take that route too but thankfully that wasn't the case.
Please explain more about STRIPS in your next blogs. I need to know more about STRIPS.
Research is important. No matter if you are buying bonds, stocks, house, car, or even a phone. Do not shy away from that.
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