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Government Securities (G-Secs) are securities issued by the Central Government or the State Government. These securities represent the market borrowings of the Centre and/ respective States. They are issued for financing the fiscal deficit and managing the temporary cash mismatches of the Government. Broadly, Government Securities can be classified as follows:
- Dated Government Securities
- State Development loans (SDLs)
- Treasury Bills
Dated Government Securities are those securities which are issued by the Central Government and are the most actively traded out of the three instruments. Similarly, SDLs, as the name suggests, refer to borrowings of the State Governments. Treasury Bills are shorter tenor securities, ranging from 91 Days to 364 Days, issued for the purpose of meeting short term liquidity mismatches of the Central Government.
Government Securities market is largely institutional in nature, though retail investments are permitted. Institutional players include Commercial banks, Primary Dealers, Insurance Companies, Co-operative banks, Regional Rural banks, Mutual Funds, Corporates, Provident and Pension funds. Foreign Institutional Investors (FIIs) too, are allowed to participate in the Government Securities market within the quantitative limits prescribed from time to time. These securities are generally held in Subsidiary General Ledger (SGL) accounts held with the RBI. In case entities do not have a direct account with RBI, they may open a Constituent SGL account with banks and Primary Dealers or convert them into dematerialized form in demat accounts maintained with the Depository Participants of NSDL.
Government securities are issued at par value (Rs 100) and have a coupon rate which is decided through the auction process at the time of issuance. The coupon interest payments are made on half-yearly basis and are redeemed at par value on maturity date. Interest payments are calculated based on 30/360 day count convention.
Government securities are highly liquid instruments available both in the primary and secondary market. In the primary market, Government securities are issued through auctions (yield based or price based auctions) conducted by RBI. There is a scheme of non-competitive bidding in these auctions wherein retail investors can participate for small amounts ranging from Rs 10,000 to Rs 2 cr (face value) in auctions of dated Government Securities and upto 1% of notified amount in auctions of SDLs.
The secondary market trading of Government securities is undertaken on an electronic platform (known as Negotiated Dealing System Order Matching (NDS-OM), over the telephone (Over-the-Counter), NDS-OM Web and Stock exchanges. The settlement of all such trades takes place on T+1 basis (T+2 in case of FPIs) through the Clearing Corporation of India (CCIL) which guarantees the settlements. The market trades from 9 a.m to 5 p.m. from Monday to Friday.
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