Article

Government Security
June 07 , 2012

If you thought you live on too much borrowed money, you can take a small consolation from the fact that the Indian Government is the most enormous borrower around! It borrows money from domestic institutions (e.g. banks, mutual funds), and retail public. It issues an 'I owe you' note called the Government Security or G-Sec or Gilt in return.

Gilts may have a maturity as long as 30 years. They pay interest on a half-yearly basis, in the form of what are called coupon payments. Such Gilts are auctioned in the market by the Reserve Bank, on behalf of the Government.

Since the Government has the power to print money (if necessary) and repay its debt, the Gilt is the most safe investment avenue you can have in this country. But since interest rates in the market fluctuate while coupon rates on the Gilt are constant, the market value of the Gilt security can fluctuate. It increases when interest rates fall, and decreases when rates rise.

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