What are G-Secs and why should investors invest in them? MintGenie explains
Notwithstanding how seamless it might appear, striking the right balance between risk and return is no mean feat. The age-old maxim states: “higher the risk, higher the return". Conversely, lower the risk, smaller the return."
Amongst the low-risk assets, the safest include government securities, which are also known as G-Secs.
After the Reserve Bank of India (RBI) in 2021 rolled out a scheme referred to as ‘RBI Retail Direct’ to trade in government securities, G-Secs’ popularity spiked significantly for obvious reasons. Wealth advisors, too, recommend investors to invest in them for the sovereign guarantee they offer and surety of return they promise.
Nithin Kamath, Zerodha's co-founder, last year, had suggested that investing in G-Secs, along with treasury bills is better than bank FDs.
“Those investors who are conservative are recommended to open a RBI Direct Gilt account in order to get an exposure to government bonds. Although their returns are lower; but so is the risk," says Deepak Aggarwal, a Delhi-based chartered accountant and investment advisor.
Government Security is a tradable instrument issued by the Central government or the state governments. It acknowledges the government's debt obligation. These securities are either short term (known as treasury bills with original maturities of less than one year) or long term (usually called government bonds or dated securities with original maturity of one year or more), elucidates the RBI website here.
Central government issues both treasury bills and bonds or dated securities while the state governments issue only bonds or dated securities which are referred to as State Development Loans (SDLs). G-Secs carry practically no risk of default and hence are called
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