Government bonds are issued by central and state governments, when they require money for large projects. For those of you who are new to bonds, a bond is like a fixed deposit that gives you fixed income at regular intervals and returns the principal amount at maturity.
Government bonds are issued by the Reserve Bank of India, on behalf of the government. They have different maturity periods - maturity period of shorter than one year are called Treasury Bills, and longer ones are called Government Bonds. Treasury Bills are issued for 91 days, 182 days and 364 days, while government bonds are issued for a minimum of 1 year and can go upto 15 years as well. These securities are issued at a low rate of interest, because of the fact that they carry a very low risk of default-they would not miss out on payments or paying back your investment at maturity.
Treasury bills and bonds are issued differently. While bonds are issued at a fixed price and you keep getting interest on it at regular intervals of time, treasury bills do not get any interim interest, but are issued at such a price that when you get your payment at maturity, your return equals the interest rate that they were advertised at.
It is not necessary for you to hold these bonds or T-bills until they mature. You can very well sell them in the market, on the exchange. These bonds are well accepted in the market and thus you can sell them to get back your money. The price of the bond in the market depends upon the market interest rate at the time of selling the bond, in comparison with the interest rate at which they were issued. If the market interest rates are higher than the interest rate at which the bond was issued, then you will get lesser money back compared to your purchase price and vice versa.
You can buy bonds from the exchange, where others are selling bonds they hold, over-the-counter, by getting in touch with sellers directly and when they are originally issued. When originally issued, the minimum amount of investment has been stipulated at Rs 10,000, while when you buy them at the exchange, there is no minimum stipulation.
You can get in touch with your bank to ask whether it facilitates you buying these bonds, with your stock broker who may help you buying or other third party sellers like SBI DFHI Ltd, for example. #gettingyourich