A tradeable debt instrument issued by the central or a state government to borrow money, carrying very low credit risk in the domestic market.
A government security, or G-Sec, is a bond or bill issued by the Government of India or a state government. Long-term central government bonds are called dated securities; short-term borrowings of less than a year are Treasury bills; state government bonds are known as State Development Loans (SDLs). The Reserve Bank of India manages their issue on the government’s behalf.
Why it matters
Because they are sovereign obligations, central government securities are generally considered to carry the lowest credit risk of any rupee investment. That makes their yields the reference point for the whole interest rate market: corporate bond yields, loan rates and debt fund returns are all read in relation to G-Sec yields.
How to read it
- Credit risk is low; interest rate risk is not. Long-dated G-Secs can move meaningfully in price when rates change. See interest rate risk.
- Yields vary by maturity. The pattern of yields across maturities is the yield curve.
- Liquidity varies. Some issues trade actively; others far less so.
Common misconceptions
- “G-Secs are only for banks.” Individuals can invest directly through the RBI Retail Direct platform, through brokers on stock exchanges, or indirectly through gilt funds and index funds that track government bond indices.
- “A gilt fund can’t fall in value.” It can, if rates rise — its NAV reflects the market prices of the bonds it holds.
- “Sovereign means the same as fixed return.” The coupon is fixed; the market price is not, unless you hold to maturity.
In India: Interest on G-Secs is generally taxable at your slab rate. Check the latest tax provisions before investing.
Related terms
Credit risk
The risk that a bond issuer or borrower fails to pay interest or repay principal in full and on time.
Interest rate risk
The risk that a bond’s price falls when market interest rates rise — larger for bonds and debt funds with longer duration.
YTM
Yield to Maturity
The annualised return on a bond bought at today’s price and held to maturity, if every payment arrives as promised and coupons are reinvested at that rate.
Zero-coupon bond
A bond that pays no periodic interest; it is bought at a discount to face value and repays the full face value at maturity.
Debt
Lending money in return for interest — through bonds, deposits or debt mutual funds — with returns driven mainly by interest rates and credit quality.
Duration
The weighted average time, in years, to receive a bond’s cash flows — and a guide to how sensitive its price is to interest rates.