Although government securities have enjoyed a long reign of being dominated by large scale investors ranging from banks and insurance companies to mutual funds and provident funds, their trajectory has altered dramatically in the past five years. This article seeks to showcase how.
Those seeking to buy government bonds have traditionally had to spend exorbitant amounts of money as purchases were primarily being made by institutional investors mentioned above. Now that these very government bonds are able to be purchased via Demat accounts of NSDL and CDSL, it has allowed for small-scale investors to participate in investing in the same on a direct basis via the Negotiated Dealing System – Order Matching (or NDS-OM) that is managed by the RBI. Free Demat accounts can be created online such that these purchases can be made.
There are a number of reasons which highlight the value of buying government bonds directly, some of which have been mentioned below.
They provide small-scale investors with long-term fixed income instruments. Government bonds for instance can be bought for a period of up to 30 years in comparison to fixed deposits which have a finite tenure amounting to 10 years at most.
Pensioners can benefit from these direct bond purchases as they provide them with assured returns over vast time frames owing to the fact that they are a relatively safe investment choice.
1. Prior to purchasing government bonds directly, investors are encouraged to consider events that would transpire should they ever need to withdraw from their purchases in government bonds. That is, they would require for the bonds to be sold in the market and liquidity could be problematic.
2. It is important to understand the market thoroughly prior to making a purchase as the bond market isn’t one that is easy to navigate. This holds particularly true for government bonds bought via the secondary market.
3. Income derived from government bonds is taxable in its entirety.
4. Government bond purchases must only be made once adequate research on the same has been done.
By opening a free Demat account online it is possible to purchase government bonds directly which are good investment options for those looking to create retirement funds. It is important to do due diligence prior to making any buy, sell or hold decisions pertaining to securities you might have your eye on. This preliminary research can reduce the potential of your incurring any risks and / or losses and can potentially allow you to accrue greater returns. Now that government bonds can be purchased with greater efficiency, consider investing in the same once you have done the aforementioned suggested research.
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