Features of Government Securities

The coupon rate and year of maturity identifies the government security. Example: 6.90% GOI 2019 indicates the following: 6.90% is the coupon rate, GOI denotes Government of India (which is the borrower), 2019 is the year of maturity.

All entities registered in India like banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, State Governments, Provident Funds, trusts, research organisations, Nepal Rashtra bank and even individuals are eligible to purchase Government Securities.

Government securities are highly liquid instruments available both in the primary and secondary market. They can be purchased from Primary Dealers. PNB Gilts Ltd., is a leading Primary Dealer in the government securities market, and is actively involved in the trading of government securities.

Forms of Issuance of Government Securities

Banks, Primary Dealers and Financial Institutions have been allowed to hold these securities with the Public Debt Office of Reserve Bank of India in dematerialized form in accounts known as Subsidiary General Ledger (SGL) Accounts.
Entities having a Gilt Account with Banks or Primary Dealers can hold these securities with them in dematerialized form.

In addition government securities can also be held in dematerialized form in demat accounts maintained with the Depository Participants of NSDL.

Minimum Amount
In terms of RBI regulations, government dated securities can be purchased for a minimum amount of Rs. 10,000/-only.Treasury bills can be purchased for a minimum amount of Rs 25000/- only and in multiples thereof. State Government Securities can be purchased for a minimum amount of Rs 10,000/- only.

Government securities are repaid at par on the expiry of their tenor. The different repayment methods are as follows :

For SGL account holders, the maturity proceeds would be credited to their current accounts with the Reserve Bank of India.
For Gilt Account Holders, the Bank/Primary Dealers, would receive the maturity proceeds and they would pay the Gilt Account Holders.
For entities having a demat acount with NSDL,the maturity proceeds would be collected by their DP's and they in turn would pay the demat Account Holders.

Day Count
For government dated securities and state government securities the day count is taken as 360 days for a year and 30 days for every completed month. However for Treasury bills it is 365 days for a year.

Example :
A client purchases 7.40% GOI 2012 for face value of Rs. 10 lacs.@ Rs.101.80, i.e. the client pays Rs.101.80 for every unit of government security having a face value of Rs. 100/- The settlement is due on October 3, 2010. What is the amount to be paid by the client?

The security is 7.40% GOI 2012 for which the interest payment dates are 3rd May, and 3rd November every year.

The last interest payment date for the current year is 3rd May 2010. The calculation would be made as follows:
     - Face value of Rs. 10 lacs.@ Rs.101.80%.

     - Therefore the principal amount payable is Rs.10 lacs X 101.80% =10,18,000

     - Last interest payment date was May 3, 2010 and settlement date is October 3, 2010. Therefore the interest has to be paid for 150 days (including 3rd May, and excluding October 3, 2010)

     - (28 days of May, including 3rd May, up to 30th May + 30 days of June, July, August and September + 2 days of October). Since the settlement is on October 3, 2010, that date is excluded.

Interest payable = 10 lacs X 7.40% X 150 = Rs. 30833.33
  360 X 100  

     - Total amount payable by client =10,18,000+30833.33=Rs. 10,48,833.33