Which government bonds are best to invest in India?

A bond is a fixed-income instrument often used by investors to diversify their portfolios and spread the risk. Investors looking to earn a fixed income or invest in safe assets gravitate towards bonds. In a volatile market, bonds assure attractive returns and return of the money invested. Hence, Bonds are a key element of a good investment portfolio

What are the advantages of bonds?

• Bonds are less volatile than equity. Thus, they are considered to be safer assets than stocks. The safety enjoyed from investing in bonds helps balance the overall riskiness of an investment portfolio.

• The entities issuing bonds make interest payments at predetermined fixed intervals and rates. Hence, bonds are a great way to earn a regular and predictable income. For this feature, bonds are better than fixed deposits for retirees.

• India’s bond market has developed significantly in recent years. Today, investors can choose from a large variety of bonds as per their investment requirements. Bonds are available in different maturities, issuers, tax-saving features, interest rate mechanisms, etc.

• Bonds are tradable instruments. Hence, they are more liquid than traditional fixed-income assets like fixed deposits and small savings schemes.

• Even fixed deposits have an element of risk. In recent years, bank frauds and low-interest rates have caused investors with a low-risk appetite to move to safe assets like government bonds. Government bonds offer utmost safety and security due to the sovereign guarantee.

What are the different types of bonds to invest in India?

• Central government bonds

The central government issues government bonds for deficit financing. RBI issues these bonds on the central government’s behalf. They are the best bonds to buy in India because of the sovereign’s commitment to interest payments and returning the principal invested.

• State development loans

Bonds issued by state governments are called state development loans. They are called such as these bonds are used by the state governments to borrow money from the public. SDLs are also low-risk bonds as they are too backed by the government.

• PSU bonds

Public sector bonds are the bonds issued by public sector undertakings (PSUs) in which the central government is the majority stakeholder. Credit agencies also rate PSU bonds. Hence, their riskiness is represented by their credit rating.

• Corporate bonds

Bonds issued by private corporations to finance business operations or expansion are called corporate bonds. They are relatively riskier than government bonds. But corporate bonds with ratings higher than A are considered to be safe. Bonds with AAA ratings are the safest after government bonds.

• Tax saving/free bonds

Bonds that offer tax deductions or are tax-free are tax saving or tax-free bonds. These are issued by organizations like the National Highways Association of India (NHAI), Indian Railways Finance Corporation, Rural Electrification Corporation (REC), etc.

Advantages of investing in government bonds in India

Utmost safety

Betting on governments is safer than on private organizations. Government bonds are the safest fixed-income instruments. This is because while hearing about corporations filing for bankruptcy or defaulting on interest payments is frequent, governments defaulting is not a regular occurrence. Hence, government bonds are best for investors with a low-risk appetite.

Tax savings

The government issues tax savings and tax-free bonds to enable investors to reap tax benefits while generating attractive returns. These bonds offer tax benefits under section 80C and 80CCF of the income tax act.

Attractive returns

The current high-interest rates on government bonds have increased their allure of government bonds. Investors can earn high returns with utmost safety from government bonds' interest rates.

How to buy government bonds in India?

RBI

Retail individuals can buy or sell government bonds directly through RBI’s retail direct portal. In this portal, investors can bid in the primary market and also trade in the secondary market.

Stock exchanges

Investors can also place their bids for government bonds through the non-competitive bidding route via platforms managed by NSE and BSE.

Stockbrokers

Individual investors can participate in auctions of government bonds through commercial banks or primary members (PMs). For this, investors need to open a gilt account with the PM. The PM acts as an intermediary between you and the RBI.

Bond platforms

Bond platforms are the new-age way to invest in bonds. Investors can invest in government and corporate bonds online through these platforms. Along with making trading in bonds easy, bond platforms offer well-researched market insights and analysis to help investors make good decisions. Moreover, integration with various payment systems adds another layer of convenience and security. Trading in bonds is as straightforward as trading in stocks through bond platforms.

Conclusion

Bonds are crucial for a well-balanced investment portfolio for their low-risk with high returns features. Government bonds, in this regard, are the best fixed-income instruments. The recent financial and technological developments have furnished the market with online platforms that have made bonds investment as lucrative, simple, and exciting as stocks.

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