What are Government Securities and Bonds

Last Updated: 23 Oct 2025

Bonds have become an ideal investment instrument for investors who do not want to put all of their eggs in one basket. Here, the basket would be the equity market or any other asset class. If 100% of the capital is allocated to a single asset class, investors may experience a liquidity crisis at the time of a bear cycle when the price of the securities falls sharply and continuously.

Thus, investors look towards debt instruments such as bonds to allow them steady income over time. However, similar to other financial instruments, bonds also include numerous risks. The best way for investors to mitigate the risks involved in bonds is to invest in government securities. This blog highlights the definition of bonds along with the various aspects of Government Securities and Bonds.

What are Bonds?

A bond is simply an IOU. When a company or government issues one, it is borrowing money from investors and promising to pay interest, called the coupon, plus the original amount, called principal, on maturity. Prices move up when market interest rates fall and drop when rates rise, because new bonds come with better or worse coupons.

A quick lesson starts with the government bonds definition. Bonds trade on exchanges and over the counter, so you can sell before maturity if a buyer agrees. They are popular with people who want steadier returns than stocks and a predictable payout schedule.

What are Government Bonds?

Many beginners simply ask, ‘What are government bonds and securities?’ Government bonds, also known as sovereign bonds or G-Secs in India, are bonds issued by a national or state treasury to fund roads, schools, defence and other public projects. Because repayment is backed by the government’s taxing power, the chance of default is generally low, which is why yields are also modest.

If you live in India, you might specifically ask, ‘What are government bonds in India?’ In India, denominations start as small as ₹10,000, and auctions are run by the Reserve Bank of India (RBI).

How Do Government Bonds Work?

When you buy a new G-Sec at auction, you enter a simple contract: lend the government money now, collect semi-annual coupons, and receive the face value at the end. On the secondary market, the same bond will change hands at prices driven by supply, demand and interest-rate expectations.

If policy rates fall, today’s fixed coupon looks attractive and the bond’s price rises; when rates climb, the price drops. Some issues are inflation-indexed, floating-rate or even linked to gold, giving extra protection against rising prices or rate shocks. To make a smart choice, first learn how government bonds work.

Different Types of Government Securities and Bonds

The Indian government issues various government bonds and securities (G-sec) to cater to its different funding needs. Here are the types of government securities and bonds:

• Fixed-Rate Government Bonds: Fixed-rate government bonds are issued by the government to offer a predetermined amount as interest at regular intervals. The coupon rate on fixed-rate government bonds (G-sec) remains the same throughout the maturity of the government bonds. For example, a fixed-rate government bond is the 7% GOI 2021 bond that offers a fixed 7% interest to the bondholders.
• Sovereign Gold Bonds: Sovereign Gold Bonds are a type of bond that provides an alternative to purchasing physical gold as tradable security. The Reserve Bank of India introduced Sovereign Gold Bonds in 2015 to allow investors who want to make profits based on the price fluctuations of physical gold to make profits without having to buy physical gold. The Reserve Bank of India issues Sovereign Gold Bonds on behalf of the Indian government, denominated in grams of gold.
• Floating-Rate Government Bonds: As the name suggests, floating-rate government bonds have fluctuating interest rates and provide different interest payments to the bondholders every time. A different variant of such bonds has a base rate and fixed rate. The fixed rate is decided through actuation and remains the same throughout the maturity of the government bond.
• 7.75% GOI Savings Bond: The 7.75% GOI Savings Bond is one of the newest introductions by the government. The savings scheme has replaced the 8% Savings Bond and has a maturity of seven years. Although the interest received on the bond is taxable, it is exempted from the provisions of wealth tax under the Wealth Tax Act, 1957.

Advantages of Investing in government bonds and securities

Within Bonds, investors choose government bonds and securities as they are considered to be one of the most ideal investments for people who do not want to take a high level of risk but earn a steady income. Here are the advantages of government bonds or government securities:

• Negligible Risk: Government bonds and securities come with negligible risk as it is highly unlikely that a government bond would default on interest payments and principal repayment. A government will always have enough cash to fulfil the payment promises and provide interest payments and principal repayment to the bondholders.
• Liquidity: As government bonds and securities are always in demand based on their low-risk profile, they are highly liquid. It means that it is easier for investors to find sellers if they want to sell the government bonds before their maturity.
• Investment Protection: Corporate bonds that are issued by private organisations come with credit risk where the issuer can default or even run away with the bondholders’ money. This is never the case with government bonds as they are backed by the government of a country and do not include the risk of default.
• Steady Returns: Government bonds and securities allow investors to earn steady returns based on the regular interest payments. All the government bonds come with a coupon rate which provides periodic interest amounts at regular intervals to the bondholders.

Risks and Limitations of Government Bonds

• Interest-rate risk: Rising rates push existing bond prices down, causing capital losses if you sell early.
• Inflation risk: A fixed coupon may lag behind living-cost increases, cutting real returns.
• Credit risk: Most major governments rarely default, but emerging-market or highly indebted nations can and sometimes do.
• Reinvestment risk: Coupons received during low-rate periods might earn less when reinvested.
• Tax: In India, coupon income is added to your slab and may be taxed. Before buying, explore the many types of government bonds.

How to Invest in Government Bonds

1. RBI Retail Direct: Open a free online gilt account, place non-competitive bids in weekly auctions, and hold bonds to maturity or sell on the NDS-OM platform.
2. NSE GoBID / BSE Direct apps: Use your demat to bid in primary auctions with as little as ₹10,000; settlement happens in your trading account.
3. Secondary market through brokers: Buy or sell listed G-Secs during market hours; compare yields, prices and lot sizes before confirming the trade.
4. Gilt mutual funds and target-maturity ETFs: Pool money with other investors, get automatic diversification, and skip the need to manage individual bonds.
5. Bond dealers for high-value blocks: Negotiate odd-lot or off-the-run securities directly, useful for high-net-worth portfolios.

Before starting, many guides advise understanding the types of government bonds to match your goal and risk level.

Final Word

Bonds are considered to be one of the safest financial instruments in the financial market as they can allow investors to offset the losses incurred in other asset classes based on the regular interest payments. Within bonds, if the investors want to mitigate the risk profile to a negligible level, government bonds and securities are the ideal investment option. Government bonds provide guaranteed payout and principal repayment and can be utilised as an effective addition to the core portfolio.

Frequently Asked Questions

What is the difference between government securities and bonds?

Government securities are debt instruments issued by the central or the state government of a country and include government bonds along with other instruments such as treasury bills, T-notes etc.

What are the features of government securities and bonds?

Government bonds and government securities come with various features such as their risk-averse nature, high liquidity, better yield etc. Furthermore, as they are issued by the government, investors can ensure they won’t fall into a financial trap and lose their investment.

Why do bond prices move opposite to interest rates?

When market rates rise, new bonds pay higher coupons, so older bonds with lower coupons must sell at a discount to stay competitive.

Can I exit before maturity without losing money?

Yes, you can sell on the secondary market, but the price depends on current yields and liquidity; if rates are higher than your coupon, you might exit at a loss.