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How to Buy Public Bonds in India?



July 06, 2021

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How to Buy Public Bonds in India?

Money is the one of the main reasons of our survival. Not holding enough of it is the bane of our existence. It has been around long enough for it to be available in abundance. The history of buying and selling goes back to the time when people from Aztec used golden dolls to buy things they liked. While the ancient Egyptians used ring money as an exchange for goods.
It is the most common form of exchange in the modern era and ties everything from a pin to forgiveness of a sin or buying of ideas. It is easily available today. Furthermore, it helps generate environments of your choice, from pleasant to uproar and peace to pandemonium.
It makes everything possible, but it requires uniformity to exist. Money is the alumni of success. The more you earn it in the corporate world or as an entrepreneur, the more successful you are in your field. What’s more important is that most of us are capable of making a lot of money. Most of us succeed, but seldom find a way to save it or invest in a place that could bring help for our future.
Spending, and unwanted expenses, has a lot to do with our thanklessness with the stock exchange. People refrain from investing in the stock market. We are a population of 1.7 billion. Out of the 1.7 billion people, only 2 crore people own stocks and the 1.5–2 crore people have invested in mutual funds and SIPs.
The ground reality angles at keeping money in a credible bank account or holding cash no matter what, because of the very fact that a new scheme getting introduced anytime will prevent/invalidate their hard-earned money for exchange or being encashed. The sentiment still exists on the ground. Mainly because of two reasons:

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1. Investors don’t believe in the market “catching pace” any more:

Since the influx of smartphones and easy internet connections, the global investors have had the opportunity to flock around investors using the technology. Whatever the news is on the stock market, an average Indian will not trust a company with their money. The reason being, lack of sentience.

Most of us know that a trusted Indian tech company or the Food Delivery giant is opening for public investments, but most of us also have that one relative who have “bet” all of it in the stock market and lost all their possessions. Hence, the story gets shared generation after generations, one city to another, one person to their close kins and friends, before it takes shape of a myth.

Investors, before anything else, need to make it a point that it is safe to put their money in their idea with a clear picture of the future. By educating the masses withholding money due to the mythical scare that money is always ‘wasted’ in the share market. That it is okay to invest if you have a little money to spare and earn interest.

2. Issue of awareness

By and large, the issue is more complex than it is seems on the surface. An average Indian thinks investing is risky, therefore, why to even think of knowing the market where losses are talked about more than the gains. Stock market is a cesspool of losing your money, let alone investing in fixed-income securities that are safer and in some cases, inflation-adjusted. The lack of awareness shows that Indians tilt towards fixed-deposits for safety.
Fixed-deposits are the instruments of fixed-income securities. They have been the most primary clampdown for an Indian investor who, at times, don’t even bother to look at the interest rates as long as the money is in a trusted bank or financial institutions. The lack of awareness is not only limited to FDs, it is more than that. People do not know how to invest. Which route to take when they wish to save money. Even if they end up earning huge returns, they would not know what to do with that money. All in all, the lack of objective puts a lot of small investors in the back seat.
When it comes to investments, governments have been encouraging the citizens of the country to look at investment as nothing but saving money for the rainy day, and it has been successful at doing that. Securing your money with a Government-backed investment strategy is been around for many years. The post office scheme, for example- People have been trusting the post office with their funds because it is easy to invest and offers liquidity. The interest is competitive, and your money is safe until it reaches maturity. These are also known as Public sector bonds.

What are Public sector Bonds In India?

What are Public sector Bonds In India
Public sector bond is nothing but a nomenclature for Government bonds that are debt securities introduced by central or state governments when they are in need of funds because of various reason. The reason could be development, new projects, need of capital.
Public sector bond is a covenant between the issuer and the buyer. When you buy a government bond, you are already told the percent of interest you will receive for the period of time your bond stays with the issuer. In this case, it is the government that uses your money to fund their projects. In return, they pay you annual and semi-annual interest.
With the longevity of anywhere between 5 and 40 years, Government bonds offer maximum security to your investments and is considered to be one of the best forms of secondary source of income which was recently made available to small-time investors.

Where to Buy Public Bonds Online?

Public sector bonds can be bought online. Small investors can buy them on any bank’s website that has been given an authority to sell bonds. Public sector bonds can also be purchased on NSE app or their web platform.

Buying government bonds is simple and super quick. You will need your KYC documents handy in order to complete the registration before the purchase begins. At the time of purchase, you need DEMAT account for the bond to be deposited.

What is public sector tax-free bonds?

Public Sector tax-free bonds are issued to raise funds. Government entities do that to fund their projects. The tax-free bond enjoys exemption of taxes on the interest you earn under section 10 of Income tax of India. The TDS is also not applied to this type of bonds.
They are a long-term engagement that go up to 10 years and more because the government takes up long-term projects that might take a long time to recover the money.

Benefits of Buying public sector bonds.

1. Low Risk

Government associated bonds are seldom prone to default. It offers capital preservation and pre-determined interest rates to investors. The interest rates are paid semi-annually.

2. Liquidity

The money you need after a period of time, but are scared you might end up using, cannot happen in the case of tax-free bonds as they are not easy to liquidate.

3. Interest rate

Interest rate of these bonds turn out to be one of the competitive features when you take the tax exemption into consideration.
Also read- How to invest in Bonds in India 2021

List of tax- free bonds issued by public sector

1. How to Sell Public Bonds in India

Selling public bonds in India is not difficult any more. An investor who has purchased the bonds on the NSE website or app, can sell the bonds in the same fashion. You will need to go to the website as before and list your bond up for sale. The price you may get on the bond, however, will depend on the bond market conditions.

2. How to invest Public Bonds Online

Investing in public bonds can be done on the NSE website or the GoBid application. Investors will need a DEMAT account and should be willing to invest a minimum of Rs. 1,000 and in multiples of it. Any individual or HUF can invest in public bonds.
There is no upper limit set for public bonds in India. The bond is issued in the DEMAT account. In case you don’t have a DEMAT account, you will be sent a physical copy of the bond. Investors can have a nominee for their bond. However, a minor is not accepted as a nominee. Public bonds are non-transferable and cannot be traded in the secondary bond market.

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As the name suggests, public sector bonds are government debt instruments that help the governments' setup powerful housing and infrastructure projects and investors earn timely interest on their investments. The debt securities cannot be used to take a loan against.

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Quite a conservative take on the bonds issued by the GOI. Good outlook, though.
Also, the GOI is currently offering an interest rate of 7.15% interest on taxable bonds. Please confirm how much they are paying.
The only issue I have with GOI bonds is that of its lack of liquidity. That is what makes the Indian bond market, far less interesting to investors than America, where the bond market is larger than the stock market.
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