Information about Government Bond
Capital is required to do business, for this businessmen take loan from banks or withdraw money from the market, in the same way the government also requires capital to function. The government receives this capital from taxes. When the government works on a big project, it requires more capital, for this capital it issues government bonds, so that the capital can be collected. On this page, information is being given about what is Government Bond and how to invest in it.
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What is Government Bond ?
Government bonds are a type of guarantee, this guarantee is given by the government. Due to which the principal amount and interest are given as per the guarantee given on investing in it. This type of investment is considered very safe. Generally government bonds are issued by the Government of India. Government bonds are issued in the prevailing currency of the country only. The term sovereign bond is used for government bonds. The interest on government bonds is also decided on the basis of repo and reverse repo rates of the Reserve Bank of India , hence people prefer to invest in it.
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How is the interest rate of government bonds decided?
The interest rate on government bonds is decided on the basis of yield rate and fiscal deficit. In this, bonds, interest rates, budget and government borrowings are interconnected, all of them influence each other. How much the government aims to borrow from the market in each financial year, all these play a major role in deciding the interest rate. Except for zero coupon bonds, the interest rate on other government bonds is already fixed.
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What is Yield , how is it different from interest?
The actual rate of return received on a bond is called yield. From this, information is obtained about the flow of bonds in the market, it can be understood in this way that if the demand is less then the production is less or less bonds are issued, if the demand for bonds is more then more bonds are issued. Yield is always called the count of these bonds, trading takes place in them. It is followed in the stock exchanges and NDS (Negotiated Dealing System) operated by the Reserve Bank of India . Due to this, the government determines the interest rate only after knowing the yield rate in the bond market. If bond prices go up, the yield rate goes down and if bond prices go down, the yield rate goes up.
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How to invest in government bonds ?
- To meet the fiscal deficit, the government issues government bonds, through this the government collects money from investors. Earlier only big investors could invest in it, now small investors have also been allowed to invest.
- The maturity period of government bonds ranges from 1 year to 30 years.
- Generally, fixed coupon bonds are called government securities, in which the interest rate remains fixed. Interest is paid on half yearly basis.
- When the government needs borrowing, it decides the interest on government bonds through an auction process, which depends on the market.
- Due to being free from credit risk, interest rates on government securities are low. If we talk about other bonds at the same time, the interest rates on them are higher.
- Negotiated Dealing System – Order Matching (NDS-OM) platform has been launched by RBI, all banks and primary dealers (PDs) of government securities are existing members of the NDS-OM scheme of RBI. Anyone who wants to invest in government bonds can buy and sell bonds through these banks and existing members.
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Here we have provided information about Government Bond, if you have any kind of question in your mind related to this information, or want to get any other information related to it, then through the comment box. You can ask, we are waiting for your feedback and suggestions.
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