What Are G-Secs and T-Bills? A Guide to India’s Safest Government Investments

Government Securities (G-Secs) are nearly two-thirds of the Indian bond market. G-Secs, or gilts, are considered risk-free investments. Get to know them. Government Securities (G-Secs) and bonds are essentially financial instruments used by governments to raise capital for various projects and activities. They serve as a means for entities, such as corporations or governments, to borrow money from investors for a defined period, offering fixed or variable interest rates.

G-Secs, specifically issued by the Central Government or State Governments, are considered risk-free gilt-edged instruments.

Let us understand what G-Secs and bonds are, and explore their types, features, and significance in the financial market.

What is a Bond?

A bond is a debt instrument through which investors lend money to an entity, typically a corporation or government. The entity borrows these funds for a specific period and offers a variable or fixed interest rate to the investors.

Bonds are widely used by companies, municipalities, states, and sovereign governments to finance a range of projects and activities.

When individuals own bonds, they become debt holders or creditors of the issuer.

What is Government Security (G-Sec)?

A Government Security (G-Sec) refers to a tradeable instrument issued by the Central Government or State Governments to acknowledge their debt obligations. G-Secs can be short-term, such as treasury bills with original maturities of less than one year, or long-term, known as Government bonds or dated securities, with original maturities of one year or more.

In India, the Central Government issues both treasury bills and bonds, while State Governments issue only bonds, also called State Development Loans (SDLs). These securities are considered risk-free and are often referred to as "gilt-edged" instruments.

What are Treasury Bills ? (T-bills)

Treasury bills, also known as T-bills, are short-term debt instruments issued by the Government of India. They are prevalent in three tenors: 91 days, 182 days, and 364 days. Unlike regular bonds, T-bills do not pay periodic interest. Instead, they are issued at a discount to their face value and redeemed at face value upon maturity.

For instance, a 91-day T-bill with a face value of ₹100 may be issued at ₹98.20, offering a discount of ₹1.80.

The return for investors is the difference between the face value (₹100) and the issue price.

Cash Management Bills

In 2010, the Government of India introduced Cash Management Bills (CMBs) in collaboration with the Reserve Bank of India (RBI) to address temporary mismatches in the government's cash flow. CMBs share similarities with T-bills but have shorter maturities of less than 91 days.

Dated G-Secs

Dated G-Secs are securities that carry a fixed or floating coupon (interest rate) paid on the face value in half-yearly installments. These securities typically have tenors ranging from 5 years to 40 years. The nomenclature of a dated fixed coupon G-Sec includes the coupon rate, issuer's name, and maturity year.

Types of Instruments

Fixed Rate Bonds

These bonds have a fixed coupon rate throughout their entire life until maturity. Most Indian Government bonds are issued as fixed-rate bonds.

Floating Rate Bonds (FRB)

Floating Rate Bonds do not have a fixed coupon rate but feature a variable coupon rate reset at pre-announced intervals, typically every six months or one year. India introduced FRBs in September 1995. The coupon rate for an FRB is determined based on the average rate of the last three auctions of 182-day T-Bills.

The coupon rate for subsequent periods is announced as the average rate of the last three auctions of 182-day T-Bills up to the start of each coupon period. FRBs provide investors with a variable coupon rate, allowing them to potentially benefit from fluctuations in market conditions. Investors can assess the attractiveness of FRBs by considering both the base rate and the fixed spread, which collectively determine the overall coupon rate.

FRBs offer a unique investment option for individuals and institutions seeking exposure to floating interest rates while maintaining a fixed spread component for stability.

Zero-Coupon Bonds 

Zero coupon bonds do not pay periodic interest but are issued at a discount to their face value. The Government of India issued zero coupon bonds in 1996, but they have not been issued since then.

Inflation-Indexed Bonds (IIBs) 

Inflation Indexed Bonds protect both coupon payments and principal amounts against inflation. They are linked to either the Wholesale Price Index (WPI) or the Consumer Price Index (CPI).

In India, IIBs linked to the WPI were introduced in June 2013, and CPI-based IIBs exclusively for retail customers were introduced in December 2013. IIBs were first issued globally in the United Kingdom in 1981.

Bonds with Call/Put Options

Bonds can be issued with call and/or put options, giving the issuer or the investor the right to buy back or sell the bond during its tenure.

The call option allowed the Government to buy back the bond at face value, while the put option enabled the investor to sell the bond to the Government at face value on any subsequent.

Special Securities

The Government of India occasionally issues special securities to entities like Oil Marketing Companies such as Indian Oil Corporation Ltd, Fertilizer Companies, and the Food Corporation of India as compensation for cash subsidies. These securities have slightly higher coupons compared to dated securities with similar maturities.

They are not eligible as Statutory Liquidity Ratio securities but can serve as collateral for market repo transactions. Bank Recapitalization Bonds were also issued in 2018 to specific Public Sector Banks, known as Special GoI securities.

STRIPS (Separate Trading of Registered Interest and Principal of Securities) – STRIPS are created by separating the cash flows associated with a regular G-Sec into individual securities. These cash flows include semi-annual coupon payments and the final principal payment.

STRIPS are zero coupon bonds created from existing securities and are eligible for SLR. They provide a means to trade individual cash flows separately in the secondary market, allowing for the development of a market-determined zero-coupon yield curve.

Sovereign Gold Bonds (SGB)

SGBs are unique instruments whose prices are linked to the price of gold. They are issued as an alternative to market borrowing and offer investors exposure to gold. SGBs are denominated in grams of gold, with minimum investments of one gram and a maximum limit per fiscal year.

They bear an annual fixed interest rate of 2.5% and can be redeemed after the fifth year. The redemption price is based on the average closing price of gold in the previous three business days.

State Development Loans (SDLs)

State Governments also raise loans from the market through SDLs, which are dated securities issued via auctions similar to those conducted for Central Government securities.

SDLs pay interest semi-annually and repay the principal upon maturity. Similar to Central Government securities, SDLs qualify for SLR and serve as eligible collateral for borrowing and repo transactions. G-Secs constitute nearly 2/3rd of India’s $2 billion bond market, according to various reports.

These debt instruments offer investors risk-free investing opportunities.

However, it is important to note that while G-Secs are considered to be risk-free in terms of credit risk, they are still subject to interest rate risk and market risk.

Key Features and Benefits of Investing in G-Secs and T-bills

Government Securities (G-Secs) and Treasury Bills (T-Bills) are some of the safest investment options in India. Here’s why they’re popular with both first-time and experienced investors:

• Backed by the Government of India: G-Secs and T-Bills are issued by the Central or State Governments. Since the government is the borrower, the chances of not getting your money back are almost zero. This makes these investments practically risk-free.
• Perfect for Risk-Averse Investors: If you’re someone who doesn’t like taking risks with your money, like senior citizens, salaried professionals, or people nearing retirement, these instruments offer safety and stability.
• Fixed and Predictable Returns: T-Bills give returns through the difference between purchase price and face value, while G-Secs pay regular interest (usually every 6 months). This means you know exactly what you’re earning in advance.
• Short-Term and Long-Term Options Available: Want to invest for 3 months? Try a 91-day T-bill. Want to lock in your funds for 5–30 years? G-Secs are a great fit. You can choose based on your financial goals.
• Easy to Buy and Sell: You can invest through your DEMAT account using NSE/BSE or even through Bondbazaar. You can also sell your securities in the secondary market before maturity if you need funds.
• Low Investment Start Point: Earlier, these were only available to big institutions. Now, even retail investors can start with just ₹10,000 and buy in multiples of ₹10,000.
• Regular Interest Payments (for G-Secs): For example, if you invest ₹1,00,000 in a G-Sec with 7% annual interest, you’ll get ₹3,500 every 6 months directly into your bank account.
• No TDS on T-Bills: T-Bills don’t deduct tax at source when they mature. However, the returns are taxed based on your income slab.
• Helps You Diversify Your Portfolio: G-Secs and T-Bills are great for balancing your investment portfolio if you already have stocks, mutual funds, or FDs.
• Excellent for Short-Term Parking of Funds: Suppose you sold a property and need to park ₹5 Lakh safely for a few months. A 91-day T-bill is ideal; it earns you safe, fixed returns while you decide what to do next.

G-Secs vs. T-Bills: A Comparative Analysis

How to Invest in G-Secs and T-bills: A Step-by-Step Guide

Investing in Government Securities (G-Secs) and Treasury Bills (T-Bills) is now easy for individual investors. Here’s how you can get started:

Step 1: Open a DEMAT and Trading Account

You need a DEMAT account (to hold securities) and a trading account (to place orders). You can open these with platforms like Bondbazaar or any registered broker.

Step 2: Complete KYC

Ensure your KYC (Know Your Customer) is completed with updated PAN, Aadhaar, and bank account details.

Step 3: Choose Your Investment Product

Decide whether you want to invest in short-term T-Bills (91, 182, 364 days) or long-term G-Secs (1–40 years).

Step 4: Check the Auction Schedule

The Reserve Bank of India (RBI) conducts weekly auctions. Auction dates are published in advance on the RBI and NSE/BSE websites.

Step 5: Place Your Order

Place a ‘non-competitive bid’ through your broker or platform. This means you don’t need to quote a price—RBI will allot securities at the average price.

Step 6: Make the Payment

Pay the amount required. Once allotted, the securities will be credited to your DEMAT account.

Step 7: Monitor or Sell Anytime

You can hold until maturity or sell the security at any time in the secondary market, just like shares.

Tax Implications of Investing in G-Secs and T-bills

Understanding how G-Secs and T-Bills are taxed can help you plan better. Here are the key tax pointers:

Interest Income from G-Secs is Taxable

The interest earned from G-Secs is added to your total income and taxed as per your income tax slab. There is no fixed tax rate—it depends on your income level.

No TDS on G-Sec Interest

Unlike bank FDs, there is no Tax Deducted at Source (TDS) on interest earned from G-Secs. However, you must declare and pay tax when filing your returns.

T-Bills Generate Capital Gains, Not Interest

T-Bills do not pay regular interest. Instead, you earn capital gains—i.e., the difference between the purchase price (discounted) and face value.

Short-Term Capital Gains (STCG) on T-Bills

Since T-Bills mature in less than a year, gains are classified as STCG and taxed as per your income tax slab rate.

No Indexation Benefit

Because G-Secs and T-Bills are not equity-linked, you cannot use indexation to reduce tax liability.

Tax-Free Bonds Are Different

Remember: Some government-backed bonds are tax-free, but G-Secs and T-Bills are not.

Consult a Tax Advisor

Always consult a professional for personalised tax planning based on your total investments and income.

Frequently Asked Questions

1. How do G-Secs and T-Bills offer risk-free investment opportunities?

G-Secs and T-Bills are backed by the Government of India, which means the chances of default are almost zero. Since the government guarantees both interest and principal repayment, these instruments are considered risk-free. Unlike stocks or mutual funds, their returns are not affected by market volatility, making them ideal for investors who prioritise capital safety.

2. How can retail investors invest in G-Secs and T-Bills?

Retail investors can invest in G-Secs and T-Bills through a DEMAT and trading account with brokers or platforms like Bondbazaar. The Reserve Bank of India conducts weekly auctions where retail investors can participate via non-competitive bidding. This allows them to invest without quoting a price, and securities are allotted at the weighted average rate decided during the auction.

3. Can G-Secs and T-Bills be traded in the secondary market?

Yes, both G-Secs and T-Bills can be traded in the secondary market before maturity. Just like stocks, they can be bought or sold on exchanges through your DEMAT account. This gives investors the flexibility to liquidate their holdings early, depending on market prices and interest rate movements.

4. What are the typical returns from G-Secs and T-Bills?

T-Bills don’t offer interest but are issued at a discount and redeemed at face value. This gives a return of around 6–7.5%* annually. G-Secs pay semi-annual interest (called coupons), typically ranging from 6% to 8%*, depending on the tenor and market conditions. Returns are predictable and fixed, offering peace of mind to conservative investors.

5. How do G-Secs and T-Bills fit into a diversified investment portfolio?

G-Secs and T-Bills are great for diversifying your portfolio as they offer stable returns and reduce overall risk. While equities and mutual funds carry market risk, G-Secs provide capital safety. T-Bills are useful for short-term surplus parking, and G-Secs are ideal for long-term income planning. Together, they balance risk and return effectively.