PRESENTATION ON GOVERNMENT

(GILT EDGED) SECURITIES MARKET

BY :GROUP-3

ANKITA GOYAL
HITESH NANDAWANA
PIYUSH SINGH
SUNIK GUPTA
MONIKA PATHAK
SOURABH SHRIVASTAV
 MEANING

 The gilt-edged market refers to the market for Government and

semi-government securities, backed by the Reserve Bank of India (RBI).

 Government securities are tradeable debt instruments issued by the

government authorities for meeting its financial requirements.

 The term gilt-edged means 'of the best quality'. This is because the
Government securities do not suffer from risk of default and are highly
liquid (as they can be easily sold in the market at their current
price).The open market operations of the RBI are also conducted in
such securities.
 Features of Government Securities

 Issued at face value

 No default risk as the securities carry sovereign
guarantee.
 Ample liquidity as the investor can sell the security in
the secondary market
 Interest payment on a half yearly basis on face value
 No tax deducted at sources
 Can be held in D-mat form.
 Rate of interest and tenor of the security is fixed at
the time of issuance and is not subject to change.
 Redeemed at face value on maturity
 Maturity ranges from of
2-30 years.
 Debt Instruments
Type Typical Features
Central Government Securities long term bonds issued by RBI on behalf of
GOI.
Coupon payment are semi annually

State Government Securities long term bonds issued by RBI on behalf of

state govt.
Coupon payment are semi annually

Government – Guaranteed Bonds long term bonds issued by govt agencies and
guaranteed by central or state govt.
Coupon payment are semi annually.

PSU(public sector units) long term bonds issued by PSU.

51% govt equity stake
Corporate Medium term bonds issued by private
companies.
Coupon payment are semi annually
 MINIMUM
SUBSCRIPTION

 Government Securities will be issued for a minimum amount of

Rs.10,000/- (Face Value) and in multiples of Rs.10,000/- thereafter.

 Payment for the Government Securities shall be made by the

applicants/investors on such dates as mentioned in the Specific
Notification, by means of cash or cheque drawn on Reserve Bank
of India, Mumbai or any specified office of Reserve Bank of India
or Banker's pay order or by authority to debit their current account
with Reserve Bank of India or by Electronic Fund Transfer in a
secured environment or by any other means as specified by
Reserve Bank of India.
 Auctions
Auctions
 Auctions: Auctions for government securities are normally multiple- price
auctions either yield based or price based.

 Yield Based: In this type of auction, RBI announces the issue size or notified
amount and the tenor of the paper to be auctioned. The bidders submit bids in
term of the yield at which they are ready to buy the security. If the Bid is more
than the cut-off yield then its rejected otherwise it is accepted.

 Price Based: In this type of auction, RBI announces the issue size or notified
amount and the tenor of the paper to be auctioned, as well as the coupon rate.
The bidders submit bids in terms of the price. This method of auction is
normally used in case of reissue of existing government securities. Bids at price
lower then the cut off price are rejected and bids higher then the cut off price
are accepted.
 Procedure for Application

 Offers for purchase of Government Securities shall be submitted by

interested persons in the form of application as specified by RBI from time
to time.

 FIIs, NRIs and Overseas Corporate bodies should submit their applications
through the designated banks which have been authorized by the Reserve
Bank of India to act as a banker to FIIs or authorized to deal in Foreign
Exchange as the case may be. Applications duly filled in should be
submitted to the office of RBI or any other institution notified for the
purpose, before the close of banking hours on the specified date/s.
 Payment of Interest

 Interest on Government Securities will be paid at the Public Debt

Offices of the Reserve Bank of India at Ahmedabad, Bangalore,
Bhubaneswar, Kolkata, Hyderabad, Jaipur, Kanpur, Mumbai,etc or
any other Office of Reserve Bank of India notified for this purpose
from time to time, or at branches of State Bank of India and Associate
banks conducting Government business.

 Interest on securities held in Bond Ledger Account with any of the

Offices of Reserve Bank of India/ Agency as specified by Reserve
Bank of India in this behalf, will be paid at such Office/Agency
 RECENT DEVELOPMENT IN
GOVERNMENT SECURITY MARKET
 The NSE Has begun trading in government bonds.

 The transaction in Government Security Market which are

recorded by the RBI in Special General Ledger account are
being published now to attain transparency in the working of
the market.

 FII in the category of 100% debt funds have been permitted

from 30 January 1997 to invest in central and state
government securities in both primary and secondary market
 TYPES OF GOVERNMENT SECURITIES

The Reserve Bank of India, India's central bank.  It issues

government securities as a way of borrowing money to be used by
the government. There are many types of government securities
issued by RBI:

 Dated securities with a fixed maturity date

 Zero coupon bonds
 Partly paid stock
 Floating rate bonds
 Treasury Bills
 Dated Securities

These are generally fixed maturity and fixed coupon

securities usually carrying semi-annual coupon. These are
called dated securities because these are identified by their
date of maturity and the coupon, e.g., 11.03% GOI 2012 is a
Central Government security maturing in 2012, which carries
a coupon of 11.03% payable half yearly.
 Features :
 They are issued at face value.
 Coupon or interest rate is fixed at the time of issuance, and
remains constant till redemption of the security.
 The tenor of the security is also fixed.
 Interest /Coupon payment is made on a half yearly basis on
its face value.
 The security is redeemed at par (face value) on its maturity
date.
 Zero Coupon bonds
 These are issued at discount to face value and redeemed at
par. These were issued first on January 19, 1994 .
 They are issued at a discount to the face value.
 The tenor of the security is fixed.
 The securities do not carry any coupon or interest rate. The
difference between the issue price (discounted price) and
face value is the return on this security.
 The security is redeemed at par (face value) on its maturity
date
 Partly Paid Stock
 It is a stock where payment of principal amount is made in
installments over a given time frame. It meets the needs of
investors with regular flow of funds and the need of
Government when it does not need funds immediately. The
first issue of such stock of eight year maturity was made on
November 15, 1994 for Rs. 2000 crore.
 Features

 They are issued at face value, but this amount is paid in

installments over a specified period.
 Coupon or interest rate is fixed at the time of issuance, and
remains constant till redemption of the security.
 The tenor of the security is also fixed.
 Interest /Coupon payment is made on a half yearly basis on its
face value.
 The security is redeemed at par (face value) on its maturity date.
 Floating Rate Bonds
o These are bonds with variable interest rate with a fixed
percentage over a benchmark rate. There may be a cap and a
floor rate attached thereby fixing a maximum and minimum
interest rate payable on it.

o Floating rate bonds of four year maturity were first issued on

September 29, 1995, followed by another issue on December 5,
1995.

o Recently RBI issued a floating rate bond, the coupon of which

is benchmarked against average yield on 364 Days Treasury
Bills for last six months. The coupon is reset every six months.
 Features

 They are issued at face value.

 Coupon or interest rate is fixed as a percentage over a predefined
benchmark rate at the time of issuance. The benchmark rate may be
Treasury bill rate, bank rate etc.
 Though the benchmark does not change, the rate of interest may
vary according to the change in the benchmark rate till redemption
of the security. The tenor of the security is also fixed.
 Interest /Coupon payment is made on a half yearly basis on its face
value.
 The security is redeemed at par (face value) on its maturity date.   
 Treasury Bills

 Treasury bills (T-bills) offer short-term investment

opportunities, generally up to one year.

 At present, the Government of India issues three types of

treasury bills through auctions, namely, 91-day, 182-day and
364-day.

 There are no treasury bills issued by State Governments.

 Treasury bills are available for a minimum amount of

Rs.25,000 and in multiples of Rs. 25,000
 CONTINUED

 Treasury bills are issued at a discount and are redeemed at par.

 While 91-day T-bills are auctioned every week on

Wednesdays, 182-day and 364-day T-bills are auctioned every
alternate week on Wednesdays.

 The Reserve Bank of India issues a quarterly calendar of T-bill

auctions which is available at the Banks’ website.
(URL:http://www.rbi.org.in). It also announces the exact dates
of auction, the amount to be auctioned and payment dates by
issuing press releases prior to every auction.
 CONTINUED

 Payment by allottees at the auction is required to be

made by debit to their/ custodian’s current account.

 Who can invest in T-Bill- Banks, Primary Dealers, State

Governments, Provident Funds, Financial Institutions,
Insurance Companies, NBFCs, FIIs (as per prescribed
norms), NRIs & OCBs can invest in T-Bills.
 RECENT DEVELOPMENT IN
GOVERNMENT SECURITY MARKET
 The NSE Has begun trading in government bonds.

 The transaction in Government Security Market which are

recorded by the RBI in Special General Ledger account are
being published now to attain transparency in the working of
the market.

 FII in the category of 100% debt funds have been permitted

from 30 January 1997 to invest in central and state
government securities in both primary and secondary market