{"id":4652,"date":"2022-10-14T12:09:32","date_gmt":"2022-10-14T12:09:32","guid":{"rendered":"https:\/\/goldenpi.com\/blog\/?p=4652"},"modified":"2026-01-15T12:08:21","modified_gmt":"2026-01-15T12:08:21","slug":"types-of-government-bonds","status":"publish","type":"post","link":"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/","title":{"rendered":"Types of Government Bonds"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Most investors always seek safer and better return instruments (financial options) in their financial planning. Government bonds or G-secs are considered one of the safest investment options amongst investors and government bonds issues various types of <a href=\"https:\/\/goldenpi.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">bonds<\/a> for the public. Investors can consider the <a href=\"https:\/\/goldenpi.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">bonds<\/a> based on their financial needs and planning.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Let us understand what those types of government bonds or G-sec types have been issued.<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_79_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#What_are_Governments_bonds\" >What are Governments bonds?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#What_is_the_Difference_Between_Corporate_Bond_and_Government_Bond\" >What is the Difference Between Corporate Bond and Government Bond?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#a_Treasury_Bills_T-bills\" >a. Treasury Bills (T-bills)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#b_Cash_Management_Bills_CMBs\" >b. Cash Management Bills (CMBs)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#c_Dated_G-Secs\" >c. Dated G-Secs\u00a0<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#1_Fixed_Rate_Bonds\" >1. Fixed Rate Bonds<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#2_Floating_Rate_Bonds\" >2. Floating Rate Bonds<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#3_Capital_Indexed_Bonds\" >3. Capital Indexed Bonds<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#4_Inflation_Indexed_Bonds\" >4. Inflation Indexed Bonds<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#How_does_Inflation_Affect_Bond_Price\" >How does Inflation Affect Bond Price?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#5_Bonds_with_Call_or_Put_Option\" >5. Bonds with Call or Put Option<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#6_Special_Securities\" >6.. Special Securities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#7_STRIPS_%E2%80%93_Separate_Trading_of_Registered_Interest_and_Principal_of_Securities\" >7. STRIPS &#8211; Separate Trading of Registered Interest and Principal of Securities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#8_Sovereign_Gold_Bonds_SGB\" >8. Sovereign Gold Bonds (SGB)\u00a0<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#What_is_Sovereign_Gold_Bond\" >What is Sovereign Gold Bond?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#9_Zero_Coupon_Bonds\" >9. Zero Coupon Bonds\u00a0<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#Closing_Thoughts\" >Closing Thoughts\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#FAQS_ON_Government_Bonds\" >FAQ&#8217;S ON Government Bonds<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#Can_government_bonds_be_redeemed_before_maturity\" >Can government bonds be redeemed before maturity?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#What_is_the_minimum_amount_to_invest_in_bond\" >What is the minimum amount to invest in bond?<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/#Are_govt_bonds_tax_free\" >Are govt bonds tax free?<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What_are_Governments_bonds\"><\/span><b>What are Governments bonds?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">When you lend money to the government in exchange for an agreed-upon interest rate, the transaction is known as a government bond or G-sec. They are frequently thought of as one of the safest asset classes. How do they operate, though? When you purchase a government bond, you are lending money to the government, which will utilize the funds raised to finance infrastructure or project development. The bond coupon specifies the frequency of the government&#8217;s fixed interest rate payments in return. The bond will keep making these payments until its maturity date, at which point it will expire and you will receive your initial investment back. From one year to 30 years or more, there are several maturities.<\/span><br \/>\n<img decoding=\"async\" class=\"aligncenter\" src=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2022\/11\/30105228\/Types-of-Government-Bonds.gif\" alt=\"Types of Government Bonds\" \/><br \/>\n<span style=\"font-weight: 400;\">Indian Government issues several bonds in order to execute various projects and investors can track <a href=\"https:\/\/goldenpi.com\/bond-ipo-online\" target=\"_blank\" rel=\"noopener\">upcoming bonds in India<\/a> based on their investment horizon and risk profile.<\/span><\/p>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"What_is_the_Difference_Between_Corporate_Bond_and_Government_Bond\"><\/span><strong><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/difference-between-corporate-and-governments-bonds\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Types_of_government_bonds\">What is the Difference Between Corporate Bond and Government Bond?<\/a><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h2 style=\"text-align: left;\"><span class=\"ez-toc-section\" id=\"a_Treasury_Bills_T-bills\"><\/span><b>a. Treasury Bills (T-bills)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The central government of India issues treasury bills, often known as T-bills, which are short-term government securities with a maturity of less than a year.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Short-term financial instruments known as Treasury Bills come in three varieties:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">1) 91 days<\/span><\/p>\n<p><span style=\"font-weight: 400;\">2) 182 days<\/span><\/p>\n<p><span style=\"font-weight: 400;\">3) 364 days<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Treasury bills are zero coupon securities and do not pay interest, although a number of financial instruments do. They are instead issued at a discount and redeemed at face value when they reach maturity.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For instance, a 91-day Treasury bill would normally cost Rs. 100, but an investor can get it for Rs. 98.20, saving them Rs. 1.80. The investor will receive the returns after 91 days, computed on the basis of Rs. 100, the actual price.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Investors will receive a total amount = Rs.721<\/span><\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-4655\" src=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2022\/10\/14095513\/Jom.jpg\" alt=\"Treasury Bills\" width=\"474\" height=\"301\" srcset=\"https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2022\/10\/14095513\/Jom.jpg 992w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2022\/10\/14095513\/Jom-300x190.jpg 300w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2022\/10\/14095513\/Jom-768x487.jpg 768w, https:\/\/d2zny4996dl67j.cloudfront.net\/blogs\/wp-content\/uploads\/2022\/10\/14095513\/Jom-585x371.jpg 585w\" sizes=\"(max-width: 474px) 100vw, 474px\" \/><\/p>\n<h2><span class=\"ez-toc-section\" id=\"b_Cash_Management_Bills_CMBs\"><\/span><b>b. Cash Management Bills (CMBs)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">In the Indian financial sector, cash management bills are new securities.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This security was first made available in 2010 by the Indian government and the Reserve Bank of India. Cash management bills are issued to cover short-term inconsistencies in the government of India&#8217;s financial flow.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The <\/span><b>RBI issues the bills<\/b><span style=\"font-weight: 400;\"> on behalf of the government.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Treasury bills and cash management bills are both short-term securities that are issued when necessary.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, the main distinction between the two is the maturity period<\/span><\/p>\n<p><span style=\"font-weight: 400;\">CMBs are an extremely short-term investment option because they are issued with maturity duration of fewer than 91 days.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For instance, if a Cash management bill has a face value of Rs.50, we can purchase it for Rs. 45 and receive Rs. 50 at end of the maturity period, which is typically 60 days. Due to the short maturity period, there is no interest payment in this case. However, a discount is received as payment for purchasing the Cash Management bill.\u00a0<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"c_Dated_G-Secs\"><\/span><b>c. Dated G-Secs\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Dated Government Securities are a distinct class of securities since they can carry a fixed or fluctuating interest rate, generally known as the coupon rate.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">They are first issued at face value, which remains constant until redemption.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Government securities, as opposed to Treasury and Cash Management Bills, offer a wide variety of tenure ranging from 5 years to 40 years, making them known as long-term market vehicles.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Those who are investing in dated government securities are called primary dealers. There are different types of dated government securities issued by the Government of India<\/span><\/p>\n<p><span style=\"font-weight: 400;\">1) Fixed Rate Bonds<\/span><\/p>\n<p><span style=\"font-weight: 400;\">2) Floating Rate Bonds<\/span><\/p>\n<p><span style=\"font-weight: 400;\">3) Capital Indexed Bonds<\/span><\/p>\n<p><span style=\"font-weight: 400;\">4) Inflation Indexed Bonds<\/span><\/p>\n<p><span style=\"font-weight: 400;\">5) Bonds with Call\/Put Options<\/span><\/p>\n<p><span style=\"font-weight: 400;\">6) Special Securities<\/span><\/p>\n<p><span style=\"font-weight: 400;\">7) STRIPS &#8211; <b>S<\/b>eparate <b>T<\/b>rading of <b>R<\/b>egistered <b>I<\/b>nterest and <b>P<\/b>rincipal of <b>S<\/b>ecurities<\/span><\/p>\n<p><span style=\"font-weight: 400;\">8) Sovereign Gold Bonds (SGB)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">9) Zero Coupon Bonds<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">Let us understand what are those 10 types of Government securities.<\/span><\/i><\/p>\n<h3><span class=\"ez-toc-section\" id=\"1_Fixed_Rate_Bonds\"><\/span><b><i>1. Fixed Rate Bonds<\/i><\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b><i>Fixed rate <\/i><\/b><span style=\"font-weight: 400;\">bond&#8217;s coupon rate is constant for its entire life as a government obligation. In other words, regardless of changes in market rates, the interest rate stays the same throughout the investment period.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For instance, an investor might purchase a fixed-rate bond from the government with a face value of Rs. 1000 and a coupon rate of 10%. The bond&#8217;s term is 10 years, and the payment schedule is either semi-annual or annual. Following that, the investor would get Rs. 50 (5%) every six months and Rs. 100 (10%) every year for the following ten years. While the market rate may fluctuate greatly, the coupon rate on this bond will not change at all.\u00a0\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_Floating_Rate_Bonds\"><\/span><em><b>2. Floating Rate Bonds<\/b><\/em><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Bonds usually have a specified coupon rate or interest rate. However,<\/span> <span style=\"font-weight: 400;\">a floating rate bond, on the other hand, is a type of debt obligation without a fixed coupon rate and instead has an interest rate that changes according to the benchmark from which it is taken. Benchmarks are tools of the market that have an impact on the national economy. Examples of benchmarks for a floating rate bond are the repo rate and the reverse repo rate.\u00a0\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You might have got confused now, about how this is going to work out \u2013 don\u2019t worry let us illustrate with an example.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Bond Price Rs. 1000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Quoted margin \u2013 4% (It will not change the entire tenure of the bonds)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Liable \u2013 6 months\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Liable rate \u2013 1%<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Tenure \u2013 2 years<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Then the investor gets the following after the six months<\/span><\/p>\n<p><span style=\"font-weight: 400;\">4% (quoted margin) + 1% liable rate at the time of purchase = Rs.50\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Since every six months\u2019 the liable rate changes, if it increases to 2%\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Then the investor will receive it after one year \u2013\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">4% (quoted margin) + 2% liable rate since it is reversed = Rs.60\u00a0<\/span><span style=\"font-weight: 400;\">Most of the bonds also will come up CAP which means \u2013 the coupon rate can go a maximum of 6%, not beyond that.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, Coupon rate is 5 % and the liable rate is 1.5 % then it is 6.5%. It cannot be paid to the investors because the CAP rate is 6%, it should not go beyond. Therefore, the investors will only receive 6% irrespective of the liable rate changes.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"3_Capital_Indexed_Bonds\"><\/span><b><em>3. Capital Indexed Bonds<\/em><\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Bonds known as &#8220;Capital Indexed Bonds&#8221; (CIBs) have periodic adjustments made to their capital value and interest payments to account for fluctuations in the Consumer Price Index (CPI). Typically, a fixed rate of interest is charged on the recalculated face value. Investors receive the bond&#8217;s adjusted face value along with the final coupon calculated from the modified face value when the bond matures.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"4_Inflation_Indexed_Bonds\"><\/span><b><em>4.<\/em> <em>Inflation Indexed Bonds<\/em><\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Inflation Index bonds (IIBs) are where the principal amount and the interest payment are linked to an inflation index. The Consumer Price Index (CPI) or the Wholesale Price Index may be used as an indicator of inflation. Investing in these <a href=\"https:\/\/goldenpi.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">bonds<\/a> ensures steady real profits. Additionally, it might protect the investor&#8217;s portfolio from inflation rates.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Governments issue Inflation Index bonds\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Bond price \u2013 R.1000\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The interest rate or coupon rate \u2013 CPI (The consumer Price Index)<\/span><b> +<\/b><span style=\"font-weight: 400;\"> 5%\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here the interest rate of 5% would remain constant and CPI may change based on inflation.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Tenure \u2013 5 years\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Payment \u2013 Semi-Annually\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">At the end of the 6 months if the inflation is 8 % then the investor would be receiving\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 8 % + 5 % = 13%<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= Rs.130\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">At the end of the year if the inflation is 6% then the investors would be receiving\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= 6 % + 5 % = 11 %<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= Rs.110<\/span><\/p>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"How_does_Inflation_Affect_Bond_Price\"><\/span><strong><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/how-does-inflation-affect-bond-price\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Types_of_government_bonds\">How does Inflation Affect Bond Price?<\/a><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"5_Bonds_with_Call_or_Put_Option\"><\/span><b><em>5. Bonds with Call or Put Option<\/em><\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">These bonds include a call option that gives the issuer the opportunity to repurchase the <a href=\"https:\/\/goldenpi.com\/\" target=\"_blank\" rel=\"noopener noreferrer\">bond<\/a> or a sell option that gives the investor the option to sell the bond to the issuer (put option). Only five years after the date of issue will the investor or issuer be able to exercise their rights.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0Example\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Bond Price \u2013 Rs. 1000\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Tenure \u2013 10 years\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Government can buy back the same bond at the same price Rs. after the completion of 5 years before the maturity period (10 years). If only the government wants to re-purchase the bond.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In the same way, the investors can sell the bond to the government at the same price which they had purchased five years before.\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"6_Special_Securities\"><\/span><b><em>6.. Special Securities<\/em><\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">The Government of India also occasionally issues special securities to companies like Oil Marketing Companies, Fertilizer Companies, the Food Corporation of India, etc. under the market borrowing program as payment in place of cash subsidies. These securities are known as oil bonds, fertilizer bonds, and food bonds, respectively. These securities are often long-dated and have a little larger coupon than the yield of similarly dated assets with a similar maturity.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Example companies \u2013 Indian Oil, Hindustan Fertiliser Corporate limited,\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"7_STRIPS_%E2%80%93_Separate_Trading_of_Registered_Interest_and_Principal_of_Securities\"><\/span><b><em>7. STRIPS &#8211; Separate Trading of Registered Interest and Principal of Securities<\/em><\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">Separate Trading of Registered Interest and Principal of Securities is referred to as STRIPS. Here, a fixed-rate bond&#8217;s cash flow is transformed into separate security. The secondary market is where they are traded after that. Additionally, they resemble zero-coupon bonds in many ways. They are made from the securities that already exist, though.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">I\u2019m sure you might be confused with the definition of STRIPS. Let us understand with an example.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Bond price Rs.1000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Coupon rate \u2013 10 %\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Tenure \u2013 5 years\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Payment mode- Semi-Annually\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Now let\u2019s apply the STRIPS concept- since it\u2019s a 5-year bond and the payment period is semiannual; the bonds will be stripped into 10 semiannual coupons and each coupon will be treated as a standalone coupon bond. The final payment of the principal payment also will be treated as a standalone zero-coupon bond.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here the investor either can trade the coupon rate or principal amount separately\u00a0<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"8_Sovereign_Gold_Bonds_SGB\"><\/span><b><i>8. Sovereign Gold Bonds (SGB)<\/i><\/b><b>\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">We are so dramatically attached to its physical gold, but Sovereign Gold bond (SGB) online issued by the government. The best part is the interest on these bonds falls under tax exemption for individual taxation.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Minimum investment in the Bonds shall be one gram with a maximum limit of subscription per fiscal year of 4 kg for individuals, the nominal value of the bonds will be determined in Indian Rupees using the three last working days of the week before the subscription period&#8217;s simple average closing price of gold with a purity of 999.9, as announced by the India Bullion and Jewelers Association Limited.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For investors applying online and making a payment in response to their application via digital means, the issue price of the Gold Bonds will be Rs. 50 per gram less than the nominal value.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Bonds will accrue interest at a fixed rate of 2.50 percent (annually) on the nominal value.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The last interest payment will be due along with the principal at maturity and will be made in half-yearly installments.<\/span><\/p>\n<h2 style=\"text-align: center;\"><span class=\"ez-toc-section\" id=\"What_is_Sovereign_Gold_Bond\"><\/span><strong><a href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/what-is-sovereign-gold-bond\/?utm_source=blog&amp;utm_medium=blog&amp;utm_Types_of_government_bonds\">What is Sovereign Gold Bond?<\/a><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"9_Zero_Coupon_Bonds\"><\/span><b><em>9. Zero Coupon Bonds\u00a0<\/em><\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><span style=\"font-weight: 400;\">The majority of bonds give monthly, quarterly, semiannual, or annual interest based on the coupon rate; but zero-coupon bonds do not have any such interest. With a zero bond, you purchase the bond at a discount from its face value and are paid the face amount when the bond expires rather than receiving interest payments.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Let us take an example.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The actual face value \u2013Rs. 10000\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You buy it at a discount price \u2013 Rs 7000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Tenure or lock-in period &#8211; 5 years\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">At the end of the five years, you will receive Rs. 10000 (which was the face value of the bond while you were purchasing)\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This situation can vary if the market fluctuates, and the face value can be lesser than the purchase price.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Let us take an example.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The actual face value \u2013Rs. 10000\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You buy at a discount price \u2013 Rs 7000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Tenure or lock-in period &#8211; 5 years<\/span><\/p>\n<p><span style=\"font-weight: 400;\">At the end of the five years, if the same bond is trading at Rs. 6500 then you will receive only Rs. 6500 due to the market fluctuation.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0<\/span><span style=\"font-weight: 400;\">You can also sell the same bond before maturity in the secondary market. The face value can depend on the again the market condition. It can be sold at a discount price or a higher price.\u00a0<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Closing_Thoughts\"><\/span><b>Closing Thoughts\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">It&#8217;s significant to have a better option for your portfolio because Government issues a wide variety of government securities. You can select the G-Sec that best fits your investment timeline because tenure is one of the key distinctions from other instruments. Government bonds or G-sec not only provide assurance of better returns <\/span><span style=\"font-weight: 400;\">and comes with less risker than other types of bonds.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"FAQS_ON_Government_Bonds\"><\/span><strong>FAQ&#8217;S ON Government Bonds<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"Can_government_bonds_be_redeemed_before_maturity\"><\/span><strong>Can government bonds be redeemed before maturity?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<style type=\"text\/css\"><!--td {border: 1px solid #cccccc;}br {mso-data-placement:same-cell;}--><\/style>\n<p><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Callable bond can be redeemed by the issuer before it's maturitu date. They are typically issued with a face value and a maturity date, at which point the bonds can be redeemed for the face value&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:9089,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:1,&quot;11&quot;:4,&quot;12&quot;:0,&quot;16&quot;:11}\">Callable bond can be redeemed by the issuer before it&#8217;s maturity date. They are typically issued with a face value and a maturity date, at which point the bonds can be redeemed for the face value<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"What_is_the_minimum_amount_to_invest_in_bond\"><\/span><strong>What is the minimum amount to invest in bond?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<style type=\"text\/css\"><!--td {border: 1px solid #cccccc;}br {mso-data-placement:same-cell;}--><\/style>\n<p><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;The minimum amount to invest in savings bons is Rs 1000 and in multiples thereof. &quot;}\" data-sheets-userformat=\"{&quot;2&quot;:897,&quot;3&quot;:{&quot;1&quot;:0},&quot;10&quot;:1,&quot;11&quot;:4,&quot;12&quot;:0}\">The minimum amount to invest in savings bons is Rs 1000 and in multiples thereof. <\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Are_govt_bonds_tax_free\"><\/span><strong>Are govt bonds tax free?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<style type=\"text\/css\"><!--td {border: 1px solid #cccccc;}br {mso-data-placement:same-cell;}--><\/style>\n<p><span data-sheets-value=\"{&quot;1&quot;:2,&quot;2&quot;:&quot;Government bonds in India are not tax free. However, the interest earned on these bonds is exempt from tax. This means that you will not have to pay any tax on the interest you earn from investing in government bonds. For example, interest on certain municipal bonds may be exempt from federal and state taxes. Capital gains from the sale of government bonds are also generally taxable.&quot;}\" data-sheets-userformat=\"{&quot;2&quot;:769,&quot;3&quot;:{&quot;1&quot;:0},&quot;11&quot;:4,&quot;12&quot;:0}\">Government bonds in India are not tax free. However, the interest earned on these bonds is exempt from tax. This means that you will not have to pay any tax on the interest you earn from investing in government bonds. For example, interest on certain municipal bonds may be exempt from federal and state taxes. Capital gains from the sale of government bonds are also generally taxable.<\/span><br \/>\n<script type=\"application\/ld+json\">{\"@context\":\"https:\/\/schema.org\",\"@type\":\"FAQPage\",\"mainEntity\":[{\"@type\":\"Question\",\"name\":\"Can government bonds be redeemed before maturity?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Callable bond can be redeemed by the issuer before it's maturity date. They are typically issued with a face value and a maturity date, at which point the bonds can be redeemed for the face value\"}},{\"@type\":\"Question\",\"name\":\"What is the minimum amount to invest in bond?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"The minimum amount to invest in savings bons is Rs 1000 and in multiples thereof.\"}},{\"@type\":\"Question\",\"name\":\"Are govt bonds tax free?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Government bonds in India are not tax free. However, the interest earned on these bonds is exempt from tax. This means that you will not have to pay any tax on the interest you earn from investing in government bonds. For example, interest on certain municipal bonds may be exempt from federal and state taxes. Capital gains from the sale of government bonds are also generally taxable.\"}}]}<\/script><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Most investors always seek safer and better return instruments (financial options) in their financial planning. Government bonds or G-secs are considered one&hellip;<\/p>\n","protected":false},"author":4,"featured_media":4654,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"categories":[24],"tags":[],"class_list":["post-4652","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bond-market"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Types of Government Bonds - What are Government Bonds? | Blogs<\/title>\n<meta name=\"description\" content=\"Types of Government Bonds\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/goldenpi.com\/blog\/essentials\/bond-market\/types-of-government-bonds\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Types of Government Bonds - What are Government Bonds? 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