How to Invest in Government Bonds?

In India, government bonds can be bought through banks, post offices, brokerage houses, gilt mutual funds, ETFs, RBI Retail Direct, and NSE goBID/BSE Direct.
How to Invest in Government Bonds?
3 mins read

Government bonds, also known as sovereign bonds or treasuries, are debt securities issued by a national government to raise funds for various public spending needs. When an individual invests in government bonds, they are lending money to the government in exchange for regular interest payments (coupon payments) over a specified period, and the return of the principal amount at the bond's maturity.

Governments issue different types of bonds with varying maturities. For example, Treasury Bills (T-Bills) are short-term government bonds with maturities of up to one year, while Government of India Bonds (G-Secs) in India have maturities ranging from 2 to 30 years.

Here are different ways to buy government bonds in India

You can purchase a government bond in India using one of the following avenues:

1. Primary Auctions:

When the government issues new bonds, it conducts primary auctions where it sells these bonds directly to investors. Investors can participate in these auctions through various channels, including:

  • Banks: Most banks in India offer the facility to buy government bonds for their customers. You can approach your bank branch or use their online platform to place a bid in the primary auction.
  • Primary Dealers (PDs): Primary Dealers are financial institutions authorized by the Reserve Bank of India (RBI) to participate directly in government securities auctions. They act as market makers and underwriters for government bonds. Retail investors can also approach these PDs to submit bids in the primary auctions.
  • National Stock Exchange (NSE) and Bombay Stock Exchange (BSE): Retail investors can participate in the primary auctions through the NSE and BSE platforms. They need to have a trading account with a registered broker and follow the auction bidding process.

2. Secondary Market:

After the primary issuance, government bonds become available for trading in the secondary market. The secondary market provides a platform for investors to buy and sell bonds that have already been issued. Here is how you can buy government bonds in the secondary market:

  • Stock Exchanges: Government bonds are listed on stock exchanges like NSE and BSE. Investors can place buy orders through their trading accounts with registered brokers.
  • Electronic Trading Platforms: Some banks and financial institutions offer online platforms where you can buy government bonds in the secondary market.
  • Bond Funds/GILT Mutual Funds: Another way to invest in government bonds indirectly is by investing in bond funds or mutual funds that primarily hold government bonds in their portfolio. This allows you to invest in a diversified bond portfolio managed by professional fund managers.

3. Retail Direct:

In recent years, the RBI has introduced the "Retail Direct" framework to allow individual investors to directly participate in the primary market auctions for government securities. This initiative aims to make government bonds more accessible to retail investors.

Open a Demat account with Bajaj Financial Securities Limited today to begin investing in government bonds.

Some popular securities available for investment in India:

Indian investors can purchase the following types of fixed-income government bonds:

1. Government of India Bonds (G-Secs):

These are long-term government bonds issued by the Central Government of India. They are considered safe investments with maturities ranging 91 days to as long as 40 years. G-Secs offer fixed interest payments and repayment of the principal amount at maturity.

2. Treasury Bills (T-Bills):

T-Bills are short-term government securities with maturities of up to 364 days. They are issued at a discount to their face value and do not pay periodic interest like traditional bonds. The return is the difference between the discounted price and the face value.

3. Sovereign Gold Bonds (SGBs):

These are government securities denominated in grams of gold. SGBs offer investors an opportunity to invest in gold without holding physical gold. They come with fixed interest payments, and the principal amount is linked to the prevailing market price of gold.

4. State Development Loans (SDLs):

Individual state governments issue SDLs to finance their development projects. These bonds carry the backing of the respective state government and come with different maturities and interest rates.

5. Floating Rate Savings Bonds (FRSBs):

These are bonds with a variable interest rate that is linked to the prevailing market rates. They offer investors protection against interest rate fluctuations.

6. Fixed-Rate Savings Bonds (Taxable):

These are fixed-rate bonds with a specified tenure and interest rate. They are taxable, and the interest earned is added to the investor's taxable income.

7. Retail Direct Gilt Account:

The Reserve Bank of India's (RBI) "Retail Direct" platform allows individual investors to directly invest in government securities in primary auctions, making it more accessible for retail investors.

8. Capital Gain Bonds:

These bonds are issued by specified entities and investing in them can provide tax benefits under Section 54EC of the Income Tax Act. The capital gains arising from the sale of assets like property can be invested in these bonds to save on taxes.

Benefits of investing in government bonds in India

Indian investors can enjoy the following benefits by investing in government bonds:

Stable and consistent returns

As fixed-income securities, government bonds allow investors to earn stable and consistent returns. Fixed-rate bonds offer a predetermined interest rate on the principal amount throughout the investment duration. This makes them best-suited for investors seeking a predictable flow of regular income.

Inflationary hedge

Certain types of government bonds, like IIBs (inflation Indexed Bonds), are specially designed to protect investments against the rising cost of living. Returns on such bonds are inflation-adjusted to help preserve the real value of the invested funds, preventing the loss of purchasing power.

Low minimum investment

Most government bonds have a low minimum investment limit of Rs. 1,000 and investors can increase their contribution in multiples of Rs. 1,000. This makes them accessible to investors seeking to park their funds in a fixed-income asset without making a substantial contribution.

Easy liquidity

Government bonds are highly liquid investment instruments, which means investors can easily buy and sell them on secondary markets. In other words, investors can easily sell their bonds before the maturity date to redeem their investment if they need immediate access to funds.

Tax benefits

Public sector entities like the NTPC Limited, NHAI, Indian Railways, and others issue tax-free bonds. These bonds offer the added advantage of tax exemptions on the interest income earned on the investment. Additionally, no TDS (Tax Deducted at Source) is applicable on these bonds. Sovereign gold bonds also enjoy certain tax benefits. If SGBs are held for 8 years, no capital gains tax is applicable on them upon maturity. Maturity proceeds from SGBs are also tax-free when collected on maturity.

Portfolio diversification

Investors can use government bonds to diversify their fixed-income portfolios. Since G-Sec bonds offer assured returns against zero risks, they can be used to mitigate the overall risk quotient of an investor’s portfolio.

Repayment guarantee

Returns from government bonds are certain since they are administered by the RBI and backed by the Indian Government's sovereign guarantee. In other words, the risk of default is almost non-existent as compared to corporate bonds. This makes government bonds one of the safest investment options in the country, especially for risk-averse investors like retirees.


Government bonds in India present a diverse range of investment opportunities for individuals seeking stable and relatively low-risk options. These securities, issued and backed by the government, cater to varying investment horizons and risk preferences. From long-term Government of India Bonds (G-Secs) to short-term Treasury Bills (T-Bills), investors can choose instruments that align with their financial goals. Additionally, specialised offerings like Sovereign Gold Bonds and Capital Gain Bonds provide avenues for diversification and potential tax benefits. However, before investing, it is essential to carefully consider individual financial circumstances, conduct thorough research, and seek guidance from financial advisors to make well-informed investment decisions.

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Frequently asked questions

Can I directly invest in government bonds?

Yes. RBI launched the Retail Direct Scheme in 2021 to help retail investors directly invest in government securities, including G-Secs. To invest in G-Secs using this option, you need to register for the RDG (Retail Direct Gilt) account with the RBI. This brokerage fee-free account will help you invest in the primary issue of different kinds of government bonds.

Are government bonds a good investment?

Generally, government bonds are reliable and safe investment options for long-term investors seeking assured and stable returns. While default risks for such bonds are minimal, they do carry inflation and interest rate risks. Investors should carefully evaluate these advantages and disadvantages against their own goals and return expectations to assess if G-Sec bonds are good options for their portfolios.

Can I invest Rs. 1,000 in bonds?

The minimum investment amount for a government bond depends on the type of bond selected. For instance, you can invest in Savings Bonds in India with a nominal amount of Rs. 1,000.

Are government bonds tax-free?

Tax-free bonds are specific types of G-Secs that offer investors tax-exempt interest income on their investments. In other words, the interest earned on the principal sum during the bond tenure is free from income tax in India.

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