How to invest in government bonds

K. ARAVIND

Our governments are spending more than they earn. The Central Government bridges the gap between revenue and expenditure by raising investment through bonds. This includes treasury bills and government bonds. Ordinary investors also have the opportunity to invest in the initial issue of these. But knowledge about the same is limited among ordinary investors.

The Reserve Bank of India announces the upcoming issues every week. Banks and other investment institutions often participate in bond sales conducted by the Reserve Bank. These bonds are issued through auction.

Five per cent is reserved for ordinary investors when such bonds are issued. Only the amount invested needs to be recorded when applying for this. Ordinary investors do not have to record prices.

Ordinary investors can participate in the auction through banks and institutions that are members of Stock Exchange Trading. The minimum amount that can be deposited in a bond is Rs.10,000 and the maximum amount is Rs 2 crore.

Those who want to hold units of debentures in demat form should have demat account. Or have a gilt account. Debenture units are credited to these accounts. The units will be transferred to the investor’s account within five days after the auction. Deposits can be made through BSE or NSE. Trading members on stock exchanges can accept bids on behalf of customers. The application can be submitted through the website or not. There are also applications that can be used on smartphones for this.

Investors must submit their order within the specified date prior to the auction. If the order is submitted online, the money can be paid in the same way as when investing in equities through trading members on stock exchanges. Those who place an order through the website or mobile application can transfer money from the bank account linked to the demat account.

There is an opportunity to cancel the order before the auction date. Upon completion of the auction, the debenture units will be credited to the investor’s accounts. The units of such debentures may also be sold through the listed stock exchanges. But the volume of trade in the secondary market will be very small.