How to Invest in Government Bonds in India?

Government bond investment can be a potential way to add security with market exposure to the portfolio. There are many mediums for investing in government bonds, such as authorised bond-selling platforms, RBI Retail Direct, stock exchanges, banks, etc. 

Bonds investment, being traditionally less popular among retail investors, may seem like a complex process. However, understanding the mediums, required documents and steps for this process can simplify the investments.

How to Invest in Government Bonds in India?

Investors can select online offline mediums for investment in government bonds in India. However, a prerequisite for this would be the ‘Know Your Customer or KYC’ process. It requires certain documents such as an Aadhar Card, Permanent Account Number (PAN) card, and bank details. 

Further, investment can be made when the bonds are freshly issued or are already trading in the market. Investors can follow this 5-step process for investing in government bonds.

Primary Issue

The government issued bonds in trenches or for short periods. It is also popular as primary auction.

Step 1: Register by entering your details on the website of RBI retail direct, bank, primary dealers (PDs) or exchanges like NSE and BSE. Investors can also visit the nearest post office or bank for offline investment.

Step 2: Complete the KYC process and check the details regarding desired government bonds.

Step 3: Place your bid in the bidding process above or equal to the minimum investment.

Step 4: Also, there is a non-competitive bidding process, which allows investors to place the bid with the required no. of bonds. The bid price/yield is not mentioned. 

Step 5: If the regular or non-competitive bidding is successful, investors receive the securities in their demat account or receive a physical certificate (for offline investment). In a non-competitive bid, the yield or price will be decided based on the weighted average yield/price of the auction.

Secondary Issue

Investors can also invest in the bonds already listed in the market. However, investors need a Demat account for the same. 

Step 1: Open a demat account with the help of an authorised broker. If an investor has an existing demat account for trading other securities, then the same account details can be used for government bond investment.

Step 2: Select a suitable online platform like exchanges or online bond trading platforms of banks and brokerage firms.

Step 3: Research and select the best government bonds to invest in India and place the order.

Step 4: The order will be settled as per the market norms and according to order details.

Step 5: Bonds held in a Demat account (without or after a specific lock-in period) can be redeemed online without a redemption window.

Mediums to Invest in Government Bonds in India

Government bonds are issued by central and state governments to finance projects or manage the monetary flow of the economy. There are many ways to invest in such bonds, directly or indirectly. Investors can select any of the following mediums to invest in government bonds in India based on their suitability and direct/indirect investment preference:

Direct Government Bond Investment	Reserve Bank of India Retail DirectAuthorised bonds platformsExchanges like the National Stock Exchange and Bombay Stock Exchange. Brokerage houses, investment advisors and wealth managers.Banks and post offices.
Indirect Government Bond Investment	Mutual funds – GILT fundsExchange-traded funds (ETFs)Alternative Investment Funds (AIFs)

Benefits and Drawbacks of Investing in Government Bonds

Understanding how to invest in government bonds may not suffice. Investors also need to explore its suitability based on their existing or desired portfolio, which can be facilitated by evaluating their advantages and disadvantages.

Benefits	Drawbacks
Due to the wide range of different types of government bonds, the desired purpose of investors can be managed.	Government bonds prefer security and may generate less returns than corporate bonds.
These instruments can provide the desired diversification along with sovereign backing.	Government restrictions may limit the capital appreciation scope for these bonds.
Investors can get reliable information about their investments.	Government bond yields are affected by several economic, geo-political, governance, etc., factors.

Conclusion

Investing in government bonds can be facilitated by different mediums like retail direct websites, authorised bonds platforms, exchanges, brokers, banks, etc. Moreover, investors can also invest in government bonds in India indirectly through ETFs and gilt funds. However, understanding the investment process in the primary or secondary issue can help investors plan the process and documentation.Log in to PowerUp Money or download its financial management app to stay updated with such different financial concepts and amp up your investment game!