Where to buy bonds in india

The primer also has, as annexes, a list of primary dealers PDs , useful excel functions and glossary of important market terminology. I hope the investors, particularly the smaller institutional investors will find the primer useful in taking decisions on investment in G-Secs. Reserve Bank of India would welcome suggestions in making this primer more user-friendly.

Bonds are used by companies, municipalities, states and sovereign governments to raise money to finance a variety of projects and activities.

Owners of bonds are debt holders, or creditors, of the issuer. Such securities are short term usually called treasury bills, with original maturities of less than one year or long term usually called Government bonds or dated securities with original maturity of one year or more.

In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans SDLs. G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. Treasury bills are zero coupon securities and pay no interest. Instead, they are issued at a discount and redeemed at the face value at maturity. The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.

Generally, the tenor of dated securities ranges from 5 years to 40 years. The nomenclature of a typical dated fixed coupon G-Sec contains the following features - coupon, name of the issuer, maturity year. For example, - 7. In case, there are two securities with the same coupon and are maturing in the same year, then one of the securities will have the month attached as suffix in the nomenclature. In this case, there is another paper viz. Each security is assigned a unique number called ISIN International Security Identification Number at the time of issuance itself to avoid any misunderstanding among the traders.

If the coupon payment date falls on a Sunday or any other holiday, the coupon payment is made on the next working day. However, if the maturity date falls on a Sunday or a holiday, the redemption proceeds are paid on the previous working day. Most Government bonds in India are issued as fixed rate bonds. For example — 8. Coupon on this security will be paid half-yearly at 4. Instead it has a variable coupon rate which is re-set at pre-announced intervals say, every six months or one year.

FRBs were first issued in September in India. For example, a FRB was issued on November 07, for a tenor of 8 years, thus maturing on November 07, The variable coupon rate for payment of interest on this FRB was decided to be the average rate rounded off up to two decimal places, of the implicit yields at the cut-off prices of the last three auctions of day T- Bills, held before the date of notification. The coupon rate for payment of interest on subsequent semi-annual periods was announced to be the average rate rounded off up to two decimal places of the implicit yields at the cut-off prices of the last three auctions of day T-Bills held up to the commencement of the respective semi-annual coupon periods.

The spread will be fixed throughout the tenure of the bond. Zero Coupon Bonds — Zero coupon bonds are bonds with no coupon payments. However, like T- Bills, they are issued at a discount and redeemed at face value. The Government of India had issued such securities in It has not issued zero coupon bonds after that. A 5 year Capital Indexed Bond, was first issued in December which matured in Since then, they were issued on monthly basis on last Tuesday of each month till December It may be noted that such bond may have put only or call only or both options.

The first G-Sec with both call and put option viz. The optionality on the bond could be exercised after completion of five years tenure from the date of issuance on any coupon date falling thereafter.

The Government has the right to buy-back the bond call option at par value equal to the face value while the investor had the right to sell the bond put option to the Government at par value on any of the half-yearly coupon dates starting from July 18, These securities are, however, not eligible as SLR securities but are eligible as collateral for market repo transactions.

These securities are named as Special GoI security and are non-transferable and are not eligible investment in pursuance of any statutory provisions or directions applicable to investing banks. These securities can be held under HTM portfolio without any limit. However, they are created out of existing securities only and unlike other securities, are not issued through auctions. Stripped securities represent future cash flows periodic interest and principal repayment of an underlying coupon bearing bond.

These cash flows are traded separately as independent securities in the secondary market. SGBs are also budgeted in lieu of market borrowing.

The calendar of issuance is published indicating tranche description, date of subscription and date of issuance. The Bonds shall be denominated in units of one gram of gold and multiples thereof. Minimum investment in the Bonds shall be one gram with a maximum limit of subscription per fiscal year of 4 kg for individuals, 4 kg for Hindu Undivided Family HUF and 20 kg for trusts and similar entities notified by the Government from time to time, provided that a in case of joint holding, the above limits shall be applicable to the first applicant only; b annual ceiling will include bonds subscribed under different tranches during initial issuance by Government and those purchased from the secondary market; and c the ceiling on investment will not include the holdings as collateral by banks and other Financial Institutions.

The Bonds shall be repayable on the expiration of eight years from the date of issue of the Bonds. Pre-mature redemption of the Bond is permitted after fifth year of the date of issue of the Bonds and such repayments shall be made on the next interest payment date.

The bonds under SGB Scheme may be held by a person resident in India, being an individual, in his capacity as an individual, or on behalf of minor child, or jointly with any other individual. Nominal Value of the bonds shall be fixed in Indian Rupees on the basis of simple average of closing price of gold of purity published by the India Bullion and Jewelers Association Limited for the last three business days of the week preceding the subscription period.

The Bonds shall bear interest at the rate of 2. Interest shall be paid in half-yearly rests and the last interest shall be payable on maturity along with the principal. The redemption price shall be fixed in Indian Rupees and the redemption price shall be based on simple average of closing price of gold of purity of previous 3 business days from the date of repayment, published by the India Bullion and Jewelers Association Limited. The above subscription limits, interest rate discount etc.

There is no maximum limit for investment in these bonds. Interest on these Bonds will be taxable under the Income Tax Act, as applicable according to the relevant tax status of the Bond holders. These Bonds will be exempt from wealth-tax under the Wealth Tax Act, CDD No. SDLs are dated securities issued through normal auction similar to the auctions conducted for dated securities issued by the Central Government please see question 3.

Interest is serviced at half-yearly intervals and the principal is repaid on the maturity date. Investment in gold has attendant problems in regard to appraising its purity, valuation, warehousing and safe custody, etc.

In comparison, investing in G-Secs has the following advantages:. They can be held in book entry, i. They can also be held in physical form.

G-Secs are available in a wide range of maturities from 91 days to as long as 40 years to suit the duration of varied liability structure of various institutions. The settlement system for trading in G-Secs, which is based on Delivery versus Payment DvP , is a very simple, safe and efficient system of settlement.

The DvP mechanism ensures transfer of securities by the seller of securities simultaneously with transfer of funds from the buyer of the securities, thereby mitigating the settlement risk. G-Sec prices are readily available due to a liquid and active secondary market and a transparent price dissemination mechanism. Besides banks, insurance companies and other large investors, smaller investors like Co-operative banks, Regional Rural Banks, Provident Funds are also required to statutory hold G-Secs as indicated below:.

Such liquid assets shall be in the form of cash, gold or unencumbered investment in approved securities. The exposure of a trust to any individual gilt fund, however, should not exceed five per cent of its total portfolio at any point of time. Commercial banks, scheduled UCBs, Primary Dealers a list of Primary Dealers with their contact details is given in Annex 2 , insurance companies and provident funds, who maintain funds account current account and securities accounts Subsidiary General Ledger SGL account with RBI, are members of this electronic platform.

All members of E-Kuber can place their bids in the auction through this electronic platform. A Gilt Account is a dematerialized account maintained with a scheduled commercial bank or PD. A Notification and a Press Communique giving exact particulars of the securities, viz. RBI places the notification and a Press Release on its website www.

The investors are thus given adequate time to plan for the purchase of G-Secs through such auctions. A specimen of a dated security in physical form is given at Annex 1. A sample of the auction calendar and the auction notification are given in Annex 3 and 4 , respectively.

The Reserve Bank releases a quarterly calendar of T-bill issuances for the upcoming quarter in the last week of the preceding quarter. The Reserve Bank of India announces the issue details of T-bills through a press release on its website every week. The tenor, notified amount and date of issue of the CMBs depend upon the temporary cash requirement of the Government. The tenors of CMBs is generally less than 91 days. The announcement of their auction is made by Reserve Bank of India through a Press Release on its website.

The non-competitive bidding scheme referred to in paragraph number 4. However, these instruments are tradable and qualify for ready forward facility. First set of CMB was issued on May 12, In terms of Sec. Under Article 3 of the Constitution of India Under section 48A of Union territories Act, in case of Union Territory , a State Government has to obtain the permission of the Central Government for any borrowing as long as there is any outstanding loan that the State Government may have from the Centre.

Market borrowings are raised by the RBI on behalf of the State Governments to the extent of the allocations under the Market Borrowing Program as approved by the Ministry of Finance in consultation with the Planning Commission. RBI, in consultation with State Governments announces, the indicative quantum of borrowing on a quarterly basis. Before every auction, respective state governments issue specific notifications indicating details of the securities being issued in the particular auction.

RBI places a press release on its website and also issues advertisements in leading English and vernacular newspapers of the respective states. Currently, SDL auctions are held generally on Tuesdays every week. What are the different types of auctions used for issue of securities?

Prior to introduction of auctions as the method of issuance, the interest rates were administratively fixed by the Government. With the introduction of auctions, the rate of interest coupon rate gets fixed through a market-based price discovery process. Investors bid in yield terms up to two decimal places e. Bids are arranged in ascending order and the cut-off yield is arrived at the yield corresponding to the notified amount of the auction.

The cut-off yield is then fixed as the coupon rate for the security. Successful bidders are those who have bid at or below the cut-off yield. Bids which are higher than the cut-off yield are rejected. An illustrative example of the yield-based auction is given below:.

Price Based Auction: A price based auction is conducted when Government of India re-issues securities which have already been issued earlier. Bids are arranged in descending order of price offered and the successful bidders are those who have bid at or above the cut-off price. Bids which are below the cut-off price are rejected. An illustrative example of price based auction is given below:. In a Uniform Price auction, all the successful bidders are required to pay for the allotted quantity of securities at the same rate, i.

In the example under ii above, if the auction was Uniform Price based, all bidders would get allotment at the cut-off price, i. Competitive bids are made by well-informed institutional investors such as banks, financial institutions, PDs, mutual funds, and insurance companies.

Multiple bidding is also allowed, i. Retail investor, for the purpose of scheme of NCB, is any person, including individuals, firms, companies, corporate bodies, institutions, provident funds, trusts, and any other entity as may be prescribed by RBI. Regional Rural Banks RRBs and Cooperative Banks shall be covered under this Scheme only in the auctions of dated securities in view of their statutory obligations and shall be eligible to submit their non-competitive bids directly.

State Governments, eligible provident funds in India, the Nepal Rashtra Bank, Royal Monetary Authority of Bhutan and any Person or Institution, specified by the Bank, with the approval of Government, shall be covered under this scheme only in the auctions of Treasury Bills without any restriction on the maximum amount of bid for these entities and their bids will be outside the notified amount.

Under the Scheme, an investor can make only a single bid in an auction. Allocation of non-competitive bids from retail investors except as specified above will be restricted to a maximum of five percent of the aggregate nominal amount of the issue within the notified amount as specified by the Government of India, or any other percentage determined by Reserve Bank of India. In the auctions of GoI dated securities, the retail investors can make a single bid for an amount not more than Rupees Two crore face value per security per auction.

Such costs may be built into the sale price or recovered separately from the clients. It may be noted that no other costs, such as funding costs, should be built into the price or recovered from the client. In case the aggregate amount of bids is less than the reserved amount, the shortfall will be taken to competitive portion. The bidding and allotment procedure is similar to that of G-Secs.

RBI has from April 22, started conducting the auction for conversion of Government of India securities on third Monday of every month.

The source securities along with notified amount and corresponding destination securities are provided in the press release issued before the auction. The market participants are required to place their bids in e-kuber giving the amount of the source security and the price of the source and destination security expressed up to two decimal places. The price of the source security quoted must be equal to the FBIL closing price of the source security as on the previous working day.

When the RBI feels that there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity. Similarly, when the liquidity conditions are tight, RBI may buy securities from the market, thereby releasing liquidity into the market.

Repurchase buyback of G-Secs is a process whereby the Government of India and State Governments buy back their existing securities, by redeeming them prematurely, from the holders.

The objectives of buyback can be reduction of cost by buying back high coupon securities , reduction in the number of outstanding securities and improving liquidity in the G-Secs market by buying back illiquid securities and infusion of liquidity in the system. The repurchase by the Government of India is also undertaken for effective cash management by utilising the surplus cash balances. For e. Repurchase of four securities 7. State Governments can also buy-back their high coupon high cost debt bearing securities to reduce their interest outflows in the times when interest rates show a falling trend.

States can also retire their high cost debt pre-maturely in order to fulfill some of the conditions put by international lenders like Asian Development Bank, World Bank etc. Repurchase of seven securities of Government of Maharashtra was done through reverse auction on March 29, Governments make provisions in their budget for buying back of existing securities. Buyback can be done through an auction process generally if amount is large or through the secondary market route, i. NDS-OM if amount is not large.

Basically, LAF enables liquidity management on a day to day basis. The operations of LAF are conducted by way of repurchase agreements repos and reverse repos — please refer to paragraph numbers LAF is an important tool of monetary policy and liquidity management.

The substitution of collateral security by the market participants during the tenor of the term repo is allowed from April 17, subject to various conditions and guidelines prescribed by RBI from time to time. Further market value of collateral securities instead of face value will be reckoned for calculating haircut and securities acquired by banks under reverse repo with RBI will be bestowed SLR status.

Scheduled commercial banks, Primary Dealers along with Mutual Funds and Insurance Companies subject to the approval of the regulators concerned maintaining Subsidiary General Ledger account with RBI are permitted to re-repo the government securities, including SDLs and Treasury Bills, acquired under reverse repo, subject to various conditions and guidelines prescribed by RBI time to time.

Physical form: G-Secs may be held in the form of stock certificates. A stock certificate is registered in the books of PDO. Ownership in stock certificates cannot be transferred by way of endorsement and delivery. They are transferred by executing a transfer form as the ownership and transfer details are recorded in the books of PDO. The transfer of a stock certificate is final and valid only when the same is registered in the books of PDO.

Demat form: Holding G-Secs in the electronic or scripless form is the safest and the most convenient alternative as it eliminates the problems relating to their custody, viz. Besides, transfers and servicing of securities in electronic form is hassle free. The holders can maintain their securities in dematerialsed form in either of the two ways:.

Only financially strong entities viz. The servicing of securities held in the Gilt Accounts is done electronically, facilitating hassle free trading and maintenance of the securities. This facilitates trading of G-Secs on the stock exchanges.

How does the trading in G-Secs take place and what regulations are applicable to prevent abuse? Whether value free transfer of G-Secs is allowed? This is an order driven electronic system, where the participants can trade anonymously by placing their orders on the system or accepting the orders already placed by other participants. Anonymity ensures a level playing field for various categories of participants.

Other participants can access this system through their custodians i. The custodians place the orders on behalf of their customers. The scheme seeks to facilitate efficient access to retail individual investor to the same G-Sec market being used by the large institutional investor in a seamless manner. Such negotiations are usually done on telephone and a deal may be struck if both counterparties agree on the amount and rate. In the case of a buyer, like an UCB wishing to buy a security, the bank's dealer who is authorized by the bank to undertake transactions in G-Secs may get in touch with other market participants over telephone and obtain quotes.

Should a deal be struck, the bank should record the details of the trade in a deal slip specimen given at Annex 5. The dealer must exercise due diligence with regard to the price quoted by verifying with available sources See question number 14 for information on ascertaining the price of G-Secs. Since notifications of orders executed as well as various queries are available online to the GAH, they are better placed to manage their positions.

PMs, however, may recover the actual charges paid by them to CCIL for settlement of trades or any other charges like transaction cost, annual maintenance charges AMC etc. Constituents not desirous of availing this facility may do so by opting out in writing.

In compliance to this, stock exchanges have launched debt trading G-Secs as also corporate bonds segment which generally cater to the needs of retail investors. The process involved in trading of G-Secs in Demat form in stock exchanges is as follows:.

The directions are applicable to all persons dealing in securities, money market instruments, foreign exchange instruments, derivatives or other instruments of like nature as specified from time to time. Major players in the G-Secs market include commercial banks and PDs besides institutional investors like insurance companies. PDs play an important role as market makers in G-Secs market. A market maker provides firm two way quotes in the market i.

Other participants include co-operative banks, regional rural banks, mutual funds, provident and pension funds. Foreign Portfolio Investors FPIs are allowed to participate in the G-Secs market within the quantitative limits prescribed from time to time. Sovereign Bonds. Fixed-income securities provide steady interest income to investors throughout the life of the bond. Fixed-income securities can also reduce the overall risk in an investment portfolio.

Regular Income Stream Fixed-income securities provide investors with a steady stream of income. Low Market Volatility Bonds carry very low volatility as compared to the prices of equity or mutual fund.

Safety - Principal Protection Investors benefit by preserving and increasing their invested capital. Portfolio Diversification Bonds enable efficient portfolio diversification and thus assist in portfolio risk-mitigation. High Priority Claim To Assets Investors in bonds have a higher priority over common and preferred stockholders.

Understand the Fixed Income Market and why you should invest in bonds. What is Yield to Maturity? How to Calculate YTM? How to take Advantage of Interest Rate Cycle? Bond Market Explained in Hindi Convey by Finnovationz is a finance and stock market related YouTube channel that runs with a motto of making India financially aware. Learn From Bond Guru. What makes TheFixedlncome. I thank to the supporting team and wish them a glorious success in future.

I am really happy by the transparency with which "The Fixed Income" helped me buy my desired bonds. Team was very efficient and helped me finalize a bond according to my requiremen. Show More Hide ond according to my requirement. Fixedincome platform is very transparent and easy to use. For the investor, government bonds make a well-diversified portfolio as it mitigates the risk of the overall portfolio. Further, investing in certain bonds can help save tax on the investment.

Another way investors can save capital gains tax is by investing in sovereign gold bonds. These are also government securities but they are denominated in grams of gold. In such a situation, it helps maintain a regular income. Especially those nearing retirement age should go for safe investment options like government bonds. It is often advisable to invest in bonds when stock markets are volatile as it reduces the risk.

However, another way to determine the right time to invest in bonds is on the basis of fall and rise of yield. The price of the bond rises when bond yield falls, hence if you are expecting a decrease in interest rate, then you can buy the bonds for capital gain.

You can also invest in tax-saving bonds if you are aiming to save tax on capital gains but you will have to do that within the time frame of the particular tax section. Another high-level security provided to the investment is through bonds being held in Demat accounts. The RBI has allowed retail investors to open gilt accounts. They have been provided with online access to the government securities market primary and secondary through the RBI Retail Direct.

The mutual fund further invests in government bonds. Other ways to invest include registering on stock exchanges for non- competitive bids. You can exchange the securities for cash along with an agreement to repurchase the bonds in the future specified date at the end of the contract. Bounce turns old scooters into electric vehicles.