Invest in government bonds and sovereign gold bonds on Kite (2024)

An ideal portfolio should have a mix of multiple asset classes like equity, debt, and gold. Diversification helps you reduce risk and behave better.

Everybody knows how to get equity exposure, either through stocks or equity mutual funds. But when it comes to debt, most people don’t know all the available options.

If you want debt exposure in your portfolio, government bonds are the safest option. Treasury bills (T-bills), GOI dated bonds (G-Secs), and State development loans (SDLs) were available for investment on Coin, but we have now moved them all to Kite. Click here to invest.

Treasury bills (T-bills)

T-bills are short-term debt instruments issued in maturities of 91 days, 182 days, and 364 days. They are ideal for short-term needs. Treasury bills don’t pay any interest. They are issued at a discount and redeemed at par. For example, a 91-day Tbill can be issued at Rs. 98, but you will receive Rs 100 when it matures. The difference of Rs. 2 is your return.

GoI dated bonds (G-Secs)

G-Secs are long-term bonds issued by the government. They are the safest type of debt instrument and are guaranteed by the government of India.

1. G-Secs are issued in maturities ranging from 5 years to 40 years.
2. They pay a fixed interest rate that is paid out every 6 months and credited to your bank account. The principal is paid upon maturity of the bond.
3. There are no lock-ins for these securities. All G-Secs, SDLs, and T-bills are listed on the exchanges, but liquidity is an issue. So, ideally you should invest if you intend to hold these bonds till maturity.
4. These bonds can also be pledged and are considered as cash equivalents.

State development loans (SDLs)

SDLs have all the same features as G-Secs. While G-Secs are issued by the RBI on behalf of the central government, SDLs are issued by state governments. A common question investors ask is if SDLs have the same government guarantee. Shaktikanta Das, the RBI governor, clarified in 2019 that state development loans have an “implicit sovereign guarantee.”

How to understand government security symbols?

Treasury bills (T-bills)

For T-bills, you will see a symbol like “91 Day T-bill.” This is self-explanatory.

G-secs

RBI reissues existing bonds and also issues new bonds periodically.

For reissued G-Secs, you will see symbols like 7.18% GS 2037.

7.18% is the interest rate or coupon. This interest is paid out twice a year, and you will receive this in your bank account.

GS refers to government security

2037 is the maturity year.

If a government bond is being issued for the first time, you will see a symbol like “NEW GS 2033.” The yield is unknown when a government bond is issued for the first time. RBI conducts an auction to discover the yield, and once it’s discovered, the bond will then be allotted to you at that yield. The interest rate and yield will be the same for a new bond. So, in the case of a new bond:

NEW GS refers to a newly issued G-Sec

2033 is the maturity year.

State development loans (SDLs)

The symbols of SDLs are similar to G-Secs. For example, “6.81% PB 2031” or GA SDL 2031

6.81% is the interest rate or coupon. This interest is paid out twice a year, and you will receive this in your bank account.

PB refers to the state issuing the bond. In this example, it’s Punjab.

2031 is that maturity year.

If a state government bond is issued for the first time, you will see a symbol like “GA SDL2033.” The yield is unknown when a state government bond is issued for the first time. RBI conducts an auction to discover the yield, and once it’s discovered, the bond will then be allotted to you at that yield. The interest rate and yield will be the same for a new bond. So, in the case of a new bond:

GA is the state (Gujarat) that is issuing the bond.

SDL is short for state development loan.

2031 is the maturity year.

Sovereign gold bonds (SGBs)

If you want to diversify your portfolio with gold, sovereign gold bonds are one of the best options. SGBs are issued by the RBI on behalf of the government of India.

Advantages of gold bonds:

1. Issued and guaranteed by the government of India.
2. 2.5% interest per year over and above gold’s market returns.
3. All gold bonds have a maturity of 8 years, with the option of premature redemption after 5 years. Gold bonds are also listed on the stock exchanges, and you can exit them anytime.
4. No expenses or brokerage on investments through primary issues. There’s no brokerage on SGBs bought in the secondary market, but exchange and SEBI charges will be applicable.
5. No capital gains tax on bonds purchased during issue and held until maturity. Interest is taxed at your slab rate.
6. If bonds are sold within 3 years, STCG will be applicable, and above 3 years, LTCG will apply.
7. Here’s a comparison of SGBs vs. physical gold, digital gold, and gold funds.

Note: It’s unclear if bonds purchased in the secondary market and held for more than 3 years are eligible for capital gains exemption. We are trying to get clarity on this.

Government bonds order window timings

Note: The dates may change due to trading holidays.

Learn more about government bonds on Varsity. You can keep track of all upcoming issues of government bonds and sovereign gold bonds on TradingQnA:

Issuance calendar for G-Secs.

Issuance calendar for T-Bills.

Issuance calendar for SGBs.

Issuance calendar for SDLs.

Basics of debt investing

How to invest in government bonds and sovereign gold bonds?

To invest in government bonds or SGBs on the Kite app, follow these steps:

1. Tap on Bids.
2. Tap on Govt. Securities.
3. Tap on the security you want to invest in and then on Place bid.
4. Enter the amount or use the “+” and “-” buttons above the keyboard to adjust the amount
5. Swipe to place the bid

To invest in government bonds or SGBs on Kite web, follow these steps:

1. Login to kite.zerodha.com.
2. Click on Bids.
3. Click on Govt. securities.
4. Click on Place bid.
   
5. Enter the amount.
6. Click on Place bid.