Government Bonds India – A Detailed Guide for 2022

In this article, we will discuss in detail the Government Bonds India in 2022.
Anyway, before getting to the start of this article, Let me tell you “What is Government Bonds in India?“.

What is a Government Bonds in India?

When considering where to store personal savings, most would think of Bank Fixed Deposit and Public Provident Fund. For investing, it’s generally shares or property. But what about Government Bonds India in 2022?
It’s likely many investors either don’t understand bonds or don’t consider an investment option as stocks or property.
Let me explain this to you in detail.

Indian Government bonds are debt security issued by the central government of India or state governments to meet their financial necessities or to meet financial deficit which also prevents the government from increasing tax rates.

Generally, short-term bonds are known as T-bills in India with a maturity of less than one year.
T-bills are available with different maturity periods ranging from 91 days to 365 days.

Also Read What are the Treasury Bills in India? – Maturity Period | Features | Issued by

On the other side, bonds with a maturity of more than a year, ranging from 5 to 40 years are long-term securities known as Government Bonds India.

Both the central and state governments can issue government bonds. Though, the bonds issued by state governments are also known as State Development Loans (i.e. SDLs).

The interest rate offered on the government bond in India is known as the coupon rate. However, the coupon can be either fixed or floating disbursed on a semi-annual basis.

The Central Government issues different variants of Government bonds. However, in this article, we will focus on top-performing government bonds India in 2022, which is based on parameters like returns on bonds, the safety of your investment, and the popularity of bonds.

But, the one important question which comes to your mind is, “Why Does the Government Issue Bonds?“.

Why Does the Government Issue Bonds?

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Whenever you need funds, you go to the bank to avail a loan and pay the bank periodic interest and also return the money after a certain amount of time.

Similarly, the Central Government also needs funds for infrastructure development. When they run short of funds, they approach the Reserve Bank of India. The RBI, in turn, auctions the loan in the form of bonds that you can buy.

In other words, you are lending a part of the overall loan the government is seeking. Against this loan, the Central Government, promises to pay periodic interest and also repay the principal at the end of the tenure.

Therefore, these bonds are backed by the full faith and credit of the central government, meaning that you are all but guaranteed coupon payments and the return of your principal investment upon maturity.   

What is an example of a Government Bonds India in 2022?

In India, every bond issued will have a unique number and this number contains all the details.
For instance, the bond number is – 700GS2040A, and here is what this means

  • Annualized interest – 7.00%
  • Type – Government Securities (GS) or Government Bonds
  • Maturity – 2040
  • Issue – ‘A’  means it’s a New issue

So, let us understand the Best Government Bonds India in 2022.

Best Government Bonds India to Invest in 2022

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RBI Bonds

  • RBI Bonds are issued by the Reserve Bank of India with an interest rate of 7.15% (compounded, payable half-yearly).
  • These bonds are also known as Government of India Savings (Taxable) Bonds.
  • Individuals (single, joint or minor) and HUFs (Hindu Undivided Family) can invest in these RBI Bonds, although NRI’s are not eligible to buy the bonds.
  • The minimum investment is ₹ 1000/- and the maximum is in multiples of ₹ 1000/-.
  • Bond tenure is 7 years.
  • Income from the bonds is taxable.
  • The application for these bonds can either be made online or offline.

Also Read RBI Bonds 2022 or Floating Rate Savings Bonds | Rate of Interest | Online & Offline

Sovereign Gold Bonds

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  • Sovereign Gold Bond comes with the tenor of 8 years and one can exit at the end of 5 years onwards and can be exercised on the payment dates.
  • The minimum permissible amount allowed for investment in bonds is 1 gram of gold.
  • The maximum limit of the subscription is 4KG for individuals/HUFs and 20KG for trusts and similar entities per fiscal year.
  • The current interest rate is 2.50% annually. They are paid twice a financial year on the nominal value.
  • GOI, in consultation with the RBI, has decided to offer a discount of ₹ 50 per gram on the nominal value of the SGB.
  • Interest on the SGB will be taxable as per the provisions of the Income-tax Act, 1961.
  • The capital gains tax arising on redemption of bonds to an individual has been exempted.
  • The indexation benefits will be provided to long terms capital gains (LTCG) arising to any person on transfer of bond.
  • Tax Deducted at Source(TDS) is not applicable to the bond. However, it is the responsibility of the bond subscriber to comply with the tax laws.

Also Read Sovereign Gold Bond : Best Returns on Gold Investment | 2020-21 Dates

IINSS-C (Inflation Indexed National Savings Securities-Cumulative)

  • IINSS-C comes with the tenor of 10 years.
  • Interest Rate – Fixed rate of 1.5% per annum + Inflation Rate.
  • The minimum investment is ₹ 5000/- and the Maximum is ₹ 10 lakh per annum for eligible individuals. However, ₹ 25 lakh per annum for institutions such as HUFs, Charitable Trusts, and similar institutions.
  • Interest Payments – Half Yearly Compounding will be paid on maturity only.
  • TDS shall not be deducted from any interest payable.
  • Premature withdrawal & Penalty – For senior citizens above 65 years, premature redemption is allowed after one year. For others, it is allowed after 3 years.
  • A penalty at the rate of half of the last payable coupon will be charged to the investors. For example, if the last payable coupon is ₹ 1,000/-, then ₹ 500 would be charged as a penalty.

Also Read RBI IINSS-C Inflation Indexed National Savings Securities-Cumulative

Tax-Free Bonds

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Also Read Tax-Free Bonds in India 2022 – How to Buy Tax-Free Bonds? | Senior Citizens | Highly Rated & Best Tax-Free Bonds

  • NHAI Tax-Free Bonds
Issued byNational Highways Authority of India
Name of the RegistrarKarvy Computershare Private Limited
Lead ManagersSBI Capital Markets Limited, A.K. Capital Services Limited, Axis Capital Limited, Edelweiss Financial Services Limited, ICICI Securities Limited
Investment throughOnline or Offline.
Mode of HoldingPhysical or Dematerialized mode
PriceINR 1,000/-
Investment Limit 5 bonds ( INR 5,000/-), individually or collectively across all Series of Bonds and in
multiples of 1 Bond ( INR 1,000/-) thereafter.
Lock-in Period10 to 20 years.
Interest paymentThe interest will be paid annually on a fixed date. However, there is NO cumulative option.
Coupon Rate 5.50% to 6.50%.
Tax BenefitInterest earned would be tax-free. Tax-free status of interest income is as per Section 10(15)(iv)(h) of the Income Tax Act, 1961.
There is no tax saving on the amount invested in these bonds. Therefore, section 80C,80CCF, 80D,54EC, etc. are not applicable.
  • IRFC Tax Free Bonds
Issued byIndian Railway Finance Corporation
Investment throughOnline or Offline.
Mode of HoldingPhysical or Dematerialized mode
PriceINR 1,000/-
Investment Limit 5 bonds ( INR 5,000/-), individually or collectively across all Series of Bonds and in
multiples of 1 Bond ( INR 1,000/-) thereafter.
Lock-in Period10 to 20 years.
Interest paymentThe interest will be paid annually on a fixed date. However, there is NO cumulative option.
Coupon Rate 5.50% to 6.50%.
Tax BenefitInterest earned would be tax-free. Tax-free status of interest income is as per Section 10(15)(iv)(h) of the Income Tax Act, 1961.
There is no tax saving on the amount invested in these bonds. Therefore, section 80C,80CCF, 80D,54EC, etc. are not applicable.

Tax Savings Bonds

Also Read SBI Capital Gain Bonds | 54EC Bonds | Features | Interest Rate 2022 | How to Buy SBI Online?

  • NHAI Tax Savings Bonds
Issued byNational Highways Authority of India
EligibilityAny individual, Hindu Undivided Family (HUF), approved institution, and non-resident Indian (NRI), can invest in these bonds provided certain conditions are met.
Mode of HoldingPhysical or Demat.
Issue priceINR 10000/- per Bond
Minimum investment One Bond
Maximum investment 500 Bonds
Lock-in Period5 Years
Interest paymentAnnually On 1st April and Final Interest at the time of Maturity.
Rate of Interest5.00% annually
Tax BenefitSEC 54 EC

Also Read NHAI Capital Gain Bonds – How to Buy NHAI Bonds Online?

  • REC Tax Saving Bonds
Issued byRural Electrification Corporation Limited
TrusteeSBICAP Trustee Company Limited, Mumbai
EligibilityAny individual, Hindu Undivided Family (HUF), approved institution and non-resident Indian (NRI), can invest in these bonds provided certain conditions are met.
Mode of HoldingPhysical or Demat.
Issue priceINR 10000/- per Bond
Minimum investment Two Bonds of INR 10,000/- each. (i.e. Minimum ₹ 20,000)
Maximum investment 500 Bonds of INR 10,000/- each (i.e. maximum ₹ 50,00,000) in a financial
year.
Note – Subject to provisions of Section 54EC of IT Act, 1961, as
amended.
Lock-in Period5 Years
Interest paymentAnnually on June 30 of each year.
Rate of Interest5.00% annually
Tax BenefitSEC 54 EC

Also Read 54 EC REC Bonds – How to Buy REC Bonds Online?

Now, one important question which comes to our mind is, “How to invest in government bonds?“.
Investment in government bonds can be done through the bond markets.

How Many Types of Bond Markets Works?

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There are two types of bond markets—primary market and secondary market. However, you can buy bonds both in the primary market or in the secondary market. 
if you don’t want to hold the bonds until maturity then they can be sold in between, to another buyer in the secondary market.
Now let’s understand the primary and secondary markets.

1. Primary market:
The primary markets deal with the fresh issue of bonds. Therefore, any government bonds are first introduced in the primary market. 

2. Secondary market:
In India, most government bonds are traded in the stock market. 
They can be sold depending on when the shareholder wishes to exit from the government bond.
Though, it is to be noted that the price for the bonds depends on how close the bond is for coupon payment.

Pros and Cons of Government Bonds India

Pros

  • Indian government bonds are a safe mode of investment as the issuer guarantees to repurchase them at the end of the tenure.
  • The investor can sell the government bonds in the secondary market.
  • Fixed-income investment is available across the maturities.
  • Mostly, no TDS is applicable on interest.
  • Can be held in the existing Demat account.
  • Some long-term government bonds enjoy absolute tax exemption as per Sec 10 or Sec 54 EC of the IT Act of India, 1961.

There are several advantages of government bonds, but investing in government bonds also has some drawbacks. 

Cons

  • Compared to all other long-term investments in the equity market, the interest earned through these bonds remains capped at 5% to 7%. It is relatively lower than other investment schemes.
  • The tenure of government bonds ranges from 5 to 40 years. In most cases, these bonds, lose their relevance after the maturity date considering the inflated value.
    Though, Inflation-Indexed Bonds are exceptions to this as they follow the inflation trend concerning their face value.

Let us understand what is the difference between Government Bonds and Fixed Deposits?

Government Bonds vs Fixed Deposits

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Below is a comparative analysis of both the investment options:

ParameterGovernment BondsTax Saving Fixed Deposit
Tenor5 to 40 Year5 Year
Return5-7.50%. However, it’s depending on bonds selectionInterest rates range from 5.5% – 7.75% and it does not dependent on market conditions.
Risk factorLowVery Low
Tax benefitsUnder Sec 10 or Sec 54 EC of the IT act of India, 1961. However, it’s depending on bonds selection.Avail tax exemptions under section 80C of IT Act, 1961. 
Minimum1000/-From INR 1000/- to 5000/-
MaximumNAINR 1,50,000/- per fiscal year
Premature Withdrawalif you don’t want to hold the bonds until maturity then it can be sold in between, to another buyer in the secondary market.NA
Tax Deducted at SourceTDS is not applicable on the bond.TDS is applicable

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