Are Government Securities (G-Secs) a Better Investment Than FDs ?


Have you ever thought about how governments manage their finances? Well, it’s similar to what we do when we need money – we might ask friends for help or take a loan from the bank. Likewise, governments seek our help by selling bonds to raise funds. Why do they need money? Running a country involves building essential things like schools, hospitals, and roads as well as funding new projects. So, when the government needs a financial boost, they turn to the public through bonds ( Government Securities). 

In this guide, we’re going to break down the mysteries of government bonds. We’ll talk about what is government bonds and its types, why they’re a safe bet, and why they matter in the big world of money. So, if you’re curious about a simple and smart way to invest without losing sleep, join us as we uncover the secrets of government bonds! 

What are Government Securities (G-Secs) ?

What are Government Securities (G-Secs) ?

Government securities are debt instruments issued by the central government and state government to raise capital. When you purchase a government bond, you are essentially lending money to the government in exchange for periodic interest payments and the return of the principal amount when the bond matures.  

Imagine you lend some money to a friend, and in return, they promise to give you a little extra every now and then and pay you back the full amount later. Well, that’s kind of how government bonds work. When you buy a government bond, you’re lending money to your country. The government pays you interest regularly as a ‘thank you’ for your help, and when the agreed time is up, they give you back the full amount you lent them. 

These financial instruments come in short-term forms, often known as treasury bills (T-Bills), with initial maturities of less than one year, or long-term forms, commonly referred to as government bonds or dated securities, with original maturities of one year or more. 

In India, the Central Government issues both treasury bills (T-Bills) and bonds or dated securities, while State Governments exclusively issue bonds or dated securities known as State Development Loans (SDLs). 

In the United States, the issuance of Treasury securities is managed by the Department of the Treasury. The U.S. Treasury issues various types of securities to meet the financial needs of the government. Two primary types of Treasury securities are Treasury bills (T-bills) and Treasury bonds.

What are Types of Government Securities ? 

  1. Treasury Bills:  Treasury Bills, commonly known as T-Bills, are short-term debt securities issued by a government to raise short-term funds to meet immediate financial needs. 

Treasury Bills (T-Bills) come in various types based on their maturity periods. The most  common types include: 

  • 91-Day T-Bills: T-Bills with a maturity period of 91 days, commonly known as three-month T-Bills. 
  • 182-Day T-Bills: T-Bills with a maturity period of 182 days, often referred to as six-month T-Bills.  
  • 364-Day T-Bills: T-Bills with a maturity period of 364 days, also known as one-year T-Bills. 
  1. Government Bonds or Dated Securities: It refers to government bonds with a fixed maturity date. These securities have a specific maturity period (ranging from 5-40 years), and the principal amount invested is repaid to the bondholder on that predefined maturity date. Here you will receive interest every 6 months. These are called “dated securities” because they have a fixed maturity date, providing clarity on when the bondholder will receive the principal amount. 
  1. State Development Loans (SDLs): State government to meet their financial need also raise funds like central government and issue financial instrument and this financial instrument is called State Development Loans. Here also interest payment is done in every 6 months and the principal is paid at maturity. The typical maturity period for these bonds usually spans up to 10 years. 
Types of Government Securities Original Maturity  Issuers Risk Of Default 
Treasury Bills (T-Bills)  Less than one year Central Government Virtually no risk 
Government Bonds or Dated Securities One year or more Central Governments, State Governments (Bonds only) Virtually no risk 
State Development Loans (SDLs) One year or more State Governments Virtually no risk 

Why Should Invest in Government Securities? 

  1. Safety and Security: G-Secs are considered one of the safest investments because they are backed by the government’s credit. 
  2. Steady Income: G-Secs provide a regular and predictable income stream through interest payments. 
  3. Diversification: Including G-Secs in a portfolio helps diversify risk. Their low correlation with other asset classes, such as stocks, can contribute to a more balanced and stable investment portfolio. 
  4. Liquidity: Government Securities are actively traded in the secondary market, providing investors with liquidity. This means they can be bought or sold relatively easily. 
  5. Capital Preservation: G-Secs are ideal for capital preservation, making them suitable for investors looking to safeguard their principal amount. 
  6. Suitability for Conservative Investors: Conservative investors who prioritize safety and stable returns often find G-Secs appealing due to their low-risk nature. 
  7. Inflation Hedge: While not immune to inflation, G-Secs can offer some protection against it, as the interest payments help preserve purchasing power. 
  8. Differing Maturities: G-Secs come with a range of maturities, allowing investors to choose instruments that align with their investment horizon and goals. 
  9. Borrowing Flexibility: G-Secs can be used as collateral to borrow money temporarily, adding flexibility to investors’ financial strategies. 

What is the process for issuing G-Secs? 

Government Securities (G-Secs) are issued through a process known as auction and it is conducted by Reserve Bank of India (RBI) and it happens on an electronic platform called E-Kuber, which is like a digital system managed by RBI. Once the auction is complete, the government issues the G-Secs to the successful bidders. These investors then become the holders of the securities and receive periodic interest payments until the maturity date when the principal amount is repaid. 

Who Participates? 

Banks, insurance companies, and other big financial players who have accounts with RBI can take part in these auctions. They use E-Kuber to place their bids, indicating how much they want to lend to the government and at what interest rate. 

For Those Not on E-Kuber: If you’re not directly on E-Kuber, smaller banks can still participate through bigger banks or Primary Dealers. They need to open something called a Gilt Account, which is like a special digital account with a big bank or Primary Dealer. In 2021 RBI came with RBI Retail direct platform where Retail Direct Gilt (RDG) account open where government securities buy and sell.

What is RBI Retail Direct ?

Purpose: RBI Retail Direct is an initiative launched by the Reserve Bank of India to enable retail investors to directly buy and sell government securities (G-Secs) through an online portal.


  • Retail investors can open and maintain their Retail Direct Gilt (RDG) account with the RBI.
  • Investors can participate in primary issuances of government securities and also buy/sell G-Secs in the secondary market.
  • The platform aims to make the process of investing in government securities more accessible to individual investors.

Now, RBI Retail Direct provides direct access for retail investors to invest in G-Sec.

Investing in G-Secs through Mutual Funds

Investing in Government Securities (G-Secs), Treasury Bills, and other fixed-income instruments has become more accessible and user-friendly through Mutual Funds (MFs). This avenue provides investors with an opportunity to tap into the safety and stability of G-Secs without the need for a separate retail account

Advantages of Investing in Government Bonds

1. Sovereign Guarantee:

  • Government Bonds are characterized by a sovereign guarantee, providing a premium status for the stability of funds and a commitment to assured returns. G-Secs represent a formal declaration of the government’s debt obligation, ensuring repayment as per stipulated terms.

2 .Inflation-Adjusted:

  • Inflation-Indexed Bonds adjust balances against the increasing average price level. Additionally, the principal amount invested in Capital Indexed Bonds is adjusted against inflation. This feature benefits investors by mitigating the impact of inflation and increasing the real value of deposited funds.

3. Regular Source of Income:

  • According to RBI regulations, interest earnings from Government Bonds are disbursed every six months to debt holders. This feature provides investors with a reliable source of regular income from their invested funds.

Disadvantages of Investing in Government Bonds

1. Low Income

  • Except for the 7.75% GOI Savings Bond, interest earnings on other types of bonds are relatively lower. Investors should consider the potential impact on overall income when opting for government bonds.

2. Loss of Relevancy:

  • Government Bonds typically have long maturity tenures ranging from 5 to 40 years. Over time, they can lose relevancy due to their extended investment horizon, especially in the face of inflation. However, this may not apply to Inflation-Indexed Bonds (IIBs) and Capital Indexed Bonds.

Investors should carefully weigh these advantages and disadvantages based on their financial goals, risk tolerance, and investment horizon. Additionally, staying informed about the specific features of different types of government bonds is crucial for making well-informed investment decisions.

Investors seeking secure investment avenues often consider Government Securities (G-Secs) and Fixed Deposits (FDs) as viable options. Both offer a degree of safety, but they also have distinct characteristics that cater to different investment preferences. Lets learn – “What is the difference between FD and GSEC?”

Are government bonds better than FD?

1. Safety and Stability:

  • G-Secs: G-Secs are considered one of the safest investment options as they are backed by the government. The repayment of principal and interest is virtually guaranteed, providing a high level of stability.
  • FDs: Fixed Deposits are also known for their stability. Bank deposits, including FDs, are secured up to a certain limit, offering a reliable avenue for risk-averse investors.

2. Returns and Interest Rates:

  • G-Secs: While G-Secs are secure, they may provide relatively lower returns compared to some other investment options. The interest rates on G-Secs are determined by market forces and government policies.
  • FDs: FDs offer fixed interest rates agreed upon at the time of investment. While this provides predictability, it may result in lower returns in an environment of rising interest rates.

3. Liquidity:

  • G-Secs: G-Secs, especially those traded in the secondary market, provide liquidity. Investors can buy or sell them before maturity, offering flexibility.
  • FDs: FDs generally have a fixed tenure, and premature withdrawals may attract penalties, impacting liquidity. However, some banks offer partial withdrawal facilities.

4. Market-Linked Returns:

  • G-Secs: G-Secs may offer market-linked returns, and their prices can fluctuate based on changes in market interest rates. This can lead to capital gains or losses for investors.
  • FDs: FD returns are predetermined, and they do not participate in market movements. The fixed interest rate ensures a known income stream.

5. Tax Implications:

  • G-Secs: The tax treatment of G-Secs can vary, and interest income may be taxed at the investor’s slab rate. Capital gains from trading G-Secs may also have tax implications.
  • FDs: Interest income from FDs is taxable, and TDS (Tax Deducted at Source) may be applicable. However, senior citizens may enjoy certain tax benefits.

6. Accessibility:

  • G-Secs: Investing in G-Secs, especially in the primary market, may require a Demat account and a slightly more involved process. Retail investors can access G-Secs through platforms like RBI Retail Direct.
  • FDs: FDs are easily accessible through banks, and the application process is straightforward, making them a popular choice for retail investors.

Bonds vs FDs: Investment Safety

In conclusion, the choice between G-Secs and FDs depends on individual preferences, risk tolerance, and financial goals. Investors seeking safety and government-backed securities may find G-Secs appealing, while those desiring fixed returns and simplicity may opt for FDs. A diversified portfolio may incorporate both, striking a balance between stability and returns. It’s advisable for investors to assess their unique circumstances and seek professional advice if needed before making investment decisions.

Who Should Invest in Government Securities? 

Is it wise to invest in government securities?

Government securities were limited to certain investors, but now they’re accessible to everyone. Government securities are well-suited for a broad range of investors due to their safety and stability. Individuals seeking a secure investment with minimal risk, especially those approaching or in retirement, can benefit from the regular and predictable income provided by these securities. Conservative investors looking to preserve their capital while earning a steady return may find government securities attractive. Additionally, institutional investors, such as banks and financial institutions, often include government securities in their portfolios for liquidity, risk diversification, and compliance with regulatory requirements. Overall, government securities are a versatile investment option suitable for those prioritizing safety and reliable returns. 

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