Government Bond Index

What Is a Bond?
• Bond is a debt security in which the authorized issuer owes the holders a debt and,
depending on the terms of the bond, is obliged to pay interest (the coupon) to use
and/or to repay the principal at a later date, termed maturity.
• A bond is a formal contract to repay borrowed money with interest at fixed intervals
(annual, quarterly, sometimes monthly)
 What Is a Bond Index?
•A bond index or bond market index is a method of measuring the value of a section
of the bond market. It is computed from the prices of selected bonds (typically
a weighted average).
•It is a tool used by investors and financial managers to describe the market and to
compare the return on specific investments.
 Types of Bond Indices
Bond indices can be categorized based on their broad characteristics-
 Government Bonds
 Municipal Bonds
 Corporate Bonds
 High-yield Bonds
 Mortgage-backed Securities
 Syndicated or leveraged loans
 Government Bonds
1. Bond issued by a national government, generally with a promise to pay periodic interest
payments called coupon payments and to repay the face value on the maturity date.
2. Government bonds are usually denominated in the country's own currency, in which case the
government cannot be forced to default, although it may choose to do so.
3. G-Sec practically carries no risk of default and hence, called as ‘Risk-Free gilt-edged
instrument.’
4. G-securities are short term (called treasury bills, with maturity of less than one year) or long
term (called Government bonds or dated securities with maturity of one year or more).
5. 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)
For example,
A bondholder invests Rs 2,00,000 (called face value) into a 10-year government bond with
10% annual coupon, the government would pay the bondholder 10% of the Rs 2,00,000 each
year. At the maturity date the government would give back the original Rs 2,00,000.
1. Treasury Bills
• Treasury bills or T-bills are money market instruments and are short term debt instruments issued by the
Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day.
• 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.
2. Dated G-Sec
• Securities carry a fixed or floating coupon (interest rate) which is paid on the face value, on half-
yearly basis. Generally, the tenor of dated securities ranges from 5 years to 40 years.
a) Fixed Rate Bonds – These are bonds on which the coupon rate is fixed for the entire life (i.e. till maturity)
of the bond. Most Government bonds in India are issued as fixed rate bonds.
b) Floating Rate Bonds (FRB) – FRBs are securities which do not have a fixed coupon rate. Instead it has a
variable coupon rate which is re-set at pre-announced intervals (say, every six months or one year).
3. Sovereign Gold Bond (SGB)
• Unique instruments, prices of which are linked to commodity price viz Gold.
• May be held by a person resident in India, on behalf of minor child, or jointly with any other
individual, Trust, HUFs, Charitable Institution and University.
• The issue price of the Gold Bonds is less than the nominal value to those investors applying online
and the payment against the application is made through digital mode.
• The redemption price is fixed in Indian Rupees and the redemption price shall be based on simple
average of closing price of gold of 999 purity of previous 3 business days from the date of
repayment.
4. 7.75% Savings (Taxable) Bonds
• Bonds will be issued at par for a minimum amount of ₹1,000 (face value) and it multiples thereof.
• Interest on these Bonds will be taxable under the Income Tax Act, 1961.
• Bonds will be exempt from wealth-tax under the Wealth Tax Act, 1957.
 Nifty G-Sec Index
It represents Government of India bonds across 6 distinct duration buckets. Up to 3 liquid
securities within each duration bucket shall be eligible to form part of the index.
List of NIFTY G-Sec Indices
• NIFTY Ultra Short Duration G-Sec Index
• NIFTY Low Duration G-Sec Index
• NIFTY Short Duration G-Sec Index
• NIFTY Medium Duration G-Sec Index
• NIFTY Medium to Long Duration G-Sec Index
• NIFTY Long Duration G-Sec Index
Nifty G-Sec Index
Nifty G-Sec Index
 Why should one invest in G-Sec?
• Risk-free return with principal amount.
• Available in a wide range of maturities from (91 days-40 years)to suit the duration of varied liability
structure of various institutions.
• Sold easily in the secondary market to meet cash requirements.
• Settlement system for trading 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
• 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-Sec.
THANK YOU

Submitted By
Noopur Bhonsle- 04
Ruchita Kumbhare-22
Tanmay Baid – 47
Sayali Kshirsagar-65