GOVERNMENT BONDS IN INDIA

 According to Reserve Bank of India "A Government Security (G-Sec) is a tradeable instrument issued by the
Central Government or the State Governments.
 It acknowledges the Government’s debt obligation.
 Such securities are short-term (usually called treasury bills, with original maturity of less than one year) or long-
term (usually called Government bonds or dated securities with original maturity of one year or more).
TYPES OF BONDS ISSUED IN INDIA:

 On long-term basis, Government issues bonds or Government Securities which are having a maturity period of 5-
40 years and they are carrying fixed or floating interest rates which are paid half-yearly.
 Various types of bonds issued in India (As per Reserve Bank of India) are:
 Fixed Rate Bonds: Bonds which carries a fixed rate of interest till maturity of the Bond.
 Floating Rate Bonds: They are those bonds which do not have a fixed coupon rate or interest rate.
 Capital Indexed Bonds: These bonds are related to the inflation index in order to protect against inflation.
(only on principal)
Inflation Index?
TYPES OF BONDS
 Inflation Indexed Bonds: These are the bonds where the principal amount & interest is protected against
inflation.
Feature Inflation-Indexed Bonds (IIBs) Capital Indexed Bonds (CIBs)

Example Principal ₹10,000 ₹10,000

Annual Interest Rate 5% 5%

Inflation Rate 3% 3%

Adjusted Principal ?????? ????????

Interest Payment ₹???? (5% of ₹Adjusted Principal) ₹ (5% of only principal)

Principal & Interest Both Adjusted? Yes No

Indexed To A Price Index A Price Index

Complete inflation protection for principal

 Bonds with Call/Put Option: These are the bonds where the issuer of the Bonds can call back the bonds or
the investor has the option to transfer the bonds to issuer.
 Recapitalization Bonds: The Government of India has issued recapitalization bonds for some specific Public
Sector Banks in 2018.
 Sovereign Gold Bonds: These are paperless gold bonds issued by Government of India at specific intervals
where face value depends on the gold rates and redemption is done after certain period at the gold rate
prevailing at that time. Interest is also being paid on the face value of the bond.
Advantages & Disadvantages?
ADVANTAGES AND DISADVANTAGES OF GOLD BONDS

Advantages
Interest payment
 One of the biggest Sovereign Gold Bond scheme benefits is the interest payment.
 The government offers a fixed annual interest rate on your SGB investment. This interest payment is divided into
two parts and is paid every 6 months to the investor.
 Irrespective of whether the cost of gold rises or falls, you are guaranteed to receive the interest.
Paper and Demat Format
 To eliminate the cost and concern of storing physical gold, the SGB is available in paper and demat format. When
you invest in SGB, you do not receive physical gold but a holding certificate.
 This means that you do not have to worry about the safety of gold or pay an annual fee for storing it in a bank
locker. The certificate will be in your name and with zero risks of getting stolen.
ADVANTAGES AND DISADVANTAGES OF GOLD BONDS

 Tax Benefit
No TDS is applicable on the interest you receive from your SGB investment. You are also allowed to transfer the bond
before maturity.
SGBs are exempt from capital gains tax if held until maturity, which is eight years.
If an SGB is sold or transferred before three years, the capital gain is considered short-term capital gains (STCG).
If an SGB is sold or transferred after one year, the capital gain is taxed at 12.50%.
The interest earned on SGBs is taxable as "Income from Other Sources" at the investor's slab rate.
DISADVANTAGES OF GOLD BOND

Maturity
 A lot of investors are discouraged by the gold bonds because of long maturity period of 8 years.
Capital Loss
Your investment in SGB can result in a capital loss as the bond value is directly linked to the price of gold in the
international markets.
If the price at which you buy the bond is higher than the price at which you redeem it at maturity, you might end up
in a loss.
ZERO COUPON BOND

 Zero-coupon bonds (ZCB), also known as discount bonds, are issued at a discount on the bond’s face value and
do not pay periodic interest to bondholders.

 On maturity, the bondholder receives the face value of his investment.

 In simple words, the investor purchasing a zero coupon bond profits from the difference between the buying
price and the face value.
YEILD TO MATURITY:

 Yield to Maturity (YTM) is the annual rate of return an investor can expect from a bond if they hold it until it
matures.
 It's a way to measure the total return of a bond, including interest payments and capital gains or losses.
 The YTM will be denoted by y
COUPON

 The contractual interest payment made by the issuer is called a coupon payment.
 The name came about because in the earlier days, bonds were issued with a booklet of post-dated coupons.
 On an interest payment date, the holder was expected to detach the relevant coupon and claim his payment.
 The coupon may be denoted as a rate or as a dollar value. We will denote the coupon rate by c.
 The dollar value, C, is therefore given by c × M.
 Most bonds pay interest on a semiannual basis and consequently the semiannual cash flow is c ×M/2.

interest payment made by Coupon value = coupon If it is semi annual?

 Consider a bond with a face value of $1,000, which pays a coupon of 8% per annum on a semiannual basis.

The semiannual coupon payment is…?

 Consider a bond with a face value of $1,000, which pays a coupon of 8% per annum on a semiannual basis.
 The annual coupon rate is 0.08.
 The semiannual coupon payment is 0.08 × 1,000/2 = $40.
VALUATION OF A BOND

the price of the bond is given by

 Infosys Technologies has issued bonds with 10 years to maturity and a face value of $1,000. The coupon rate is 8%
per annum payable on a semiannual basis. If the required yield in the market is equal to 9%, what should be the
price of the bond?
Infosys Technologies has issued bonds with 10 years to maturity
and a face value of $1,000. The coupon rate is 8% per annum
VALUATION
payable on a semiannual basis. If the required yield in the
market is equal to 9%, what should be the price of the bond?
OF A BOND-
EXAMPLE:
CAPITAL MARKETS

 HISTORY
 18TH CENTURY – East India Company
 1875- Native shares and stock brokers association- prem chand roy chand
 BSE
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