For the retail investor, government securities offer one of the better options for investment. The advantages for retail investors can be listed as under:
G-sec are risk free
G-sec in domestic market context are risk free and carry no credit risk. Though this assertion is being widely debated in wake of the events unfolding in the Eurozone sovereign debt crisis, the fact remains that G-sec in the Indian context are risk free.
G-sec offer decent yields for longer duration
Currently G-sec offer yields ranging from 8.00 per cent to 8.30 per cent and the tenor of securities extend up to thirty years. With government issuing securities at different points on the yield curve, G-sec offer an attractive option for savers who need low risk investment options for longer durations.
G-sec offer prospect of capital gains
As there is an inverse relationship between bond price and interest rate, there is a prospect of capital gains when the interest rates moderate. One, however, must be conscious of market risks that could result in losses in case the interest rate cycle reverses.
G-sec have reasonable liquidity
G-sec have reasonable liquidity and can be transacted on NDS-OM (Negotiated Dealing System-Order Matching). Retail investors can trade easily through banks and primary dealers with an SGL (Subsidiary General Leger) account in RBI.
G-sec help to diversify portfolio
Investments in government securities would help in portfolio diversification and consequently reduce risk for retail investors.