Long-Term Government Bonds are Offering Attractive Yields

Bonds are the ideal financial instruments used by the government to raise capital as debt from the market. Retail investors find stable and profitable investment instruments and diversify their investment portfolios.

There are short-term and long-term investment bonds. Let us take a quick look at their features and understand these tools easily.

Long-term government bonds

A government bond is a long-term security investment tool that investors buy. These bonds are formulated by the central and state governments to raise finance and bridge fiscal deficits. The infrastructure development of a state or a country needs funds and it is raised securely by using government bonds with a tenure ranging from 5 to 40 years. They are also called government security bonds of G-Secs. The value of a government bond is determined by its fixed or floating coupon rate (rate of interest). In most cases, the rate of interest is fixed.

These bonds are the ideal ways to initiate and maintain capital supply. Once the tenure ends, a government bond pays out the assured sum along with the interest offered. Bonds are issued under the supervision and control of the Reserve Bank of India.

Who buys government bonds?

These bonds are offered to investors across all domains. Retail investors and high net-worth individuals (HNIs) invest in these tools with a long-term plan with assured ROI. HNIs are recognized by their investment level of Rs 5 Crore and above.

This tool was accessed by HNIs such as commercial banks, financial institutions, companies, etc. The latest amendment has let retail investors securely invest their money too. Cooperative banks and individual investors are eyeing better and safe returns from the market by investing in such tools.

Small investors can buy government bonds online by using government applications such as BSE Direct and NSE goBID to invest a minimum of Rs 10,000 in these bonds. There are other private applications and official online portals where one can gain knowledge of such bonds and invest accordingly.

Attractive yield from government bonds

Considering the different types of government bonds, the risk involved in such investment tools is much lower than the higher-yielding mediums. These bonds come with exceptional security from the issuing authority. The risk involved is much lower than conventional equity choices made by retail investors these days. However, the rate of interest can change over time due to the long tenure involved in such bonds. Long-term security bonds have a tenure of 5-40 years.

After Budget 2022, the yields of government borrowings have grown higher than expectations. It led to an increase of 2% resulting in a yield of 6.9 for 10-years government bonds. In fact, the fiscal deficit in the current scenario will result in more supply of government security bonds.

Government bonds are much more transparent and easier to comprehend for newbie retail investors. The services offered by the investment firms also help investors to choose the right options. Many private companies offer a strategy to diversify your investment in different central and state governments-offered bonds.

Considering all the pros and cons, government bonds are great tools for harnessing the power of compounding and securing your future, and diversifying your investment portfolio.

I am Dheeraj Jhunjhunwala Content creator of BondsIndia