What is Government Security?: Meaning, Objectives, All Terms

government security is a bond issued by a government authority with a promise of repayment upon maturity. Everything you want to know about Govt Security. Treasury bonds, Cash Management Bills, Dated Government Securities, Fixed Rate Bonds, Floating Rate Bonds, Zero Coupon Bonds, Capital Indexed Bonds. Recently we provide Commercial Papers – Meaning – Features and Senior citizens savings scheme. Now you can scroll down below and check full details regarding “What is Government Security? – Complete details”

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What’s a Government security ?

securities issued by the Government for raising a public loan or as notified in the official Gazette are called as Government securities. The government securities market consists of securities issued by the State government and the Central government and Treasury bills. They consist of Government Promissory Notes, Bearer Bonds, Stocks or Bonds held in Bond Ledger Account. As per RBI A Government security is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation.

Objectives :

  • 1) To manage the temporary cash mismatches of the Government.
  • 2) To finance the fiscal deficit.

Terms to be known ;

1) Treasury bonds :

They are money market instruments, are short term debt instruments issued by the Government of India.. Treasury bills are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at the time of maturity.

2) Cash Management Bills :

Cash Management Bills are very similar to Treasury bonds but issued in order to regulate the temporary mismatch in in the cash flow of the Government. They are issued for a period less than or equals to 90 Days.

3) Dated Government Securities :

Dated Government securities are long term securities and carry a fixed or floating interest rate which is paid on the face value, payable at fixed time periods, usually half-yearly. The maturity period of dated securities can be up to 30 years.

4) Fixed Rate Bonds :

These are bonds on which the coupon rate is fixed for the entire life of the bond. Most Government bonds are issued as fixed-rate bonds.

5) Floating Rate Bonds :

Floating Rate Bonds are securities which do not have a fixed coupon rate. The rate of interest is changed periodically at specified time intervals.

6) Zero Coupon Bonds :

Zero coupon bonds are bonds with no coupon payments. Like Treasury Bills, they are issued at a discount to the face value.

7) Capital Indexed Bonds :

In these bonds, the principal of is linked to an accepted index of inflation with a view to protecting the holder from inflation. In order to protect the holders against actual inflation,
the principal will be indexed and the coupon will be calculated on the indexed principal.

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