A Government security (G-sec) is a debt obligation of the Indian government to fund their fiscal deficit. These instruments are trad-able and are issued either by the central or the state government. These securities are offered for short-term as well as long term. Short-term instruments with a maturity of less than one year are typically called treasury bills (T-Bills) whereas long-term instruments are called government bonds or dated securities with a maturity of one year or more.
Government securities, also called the gilt edged securities or G-secs, are not only free from default risk but as provide reasonable risks and, therefore, offer the most suitable investment opportunity to provident funds.
Treasury bills (T-bills) offer short-term investment opportunities, generally upto one year. They are thus useful in managing short-term liquidity. 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. The 91-day T-bills are auctioned every week on Wednesdays, 182-day and 364-day T-bills are auctioned every alternative week on Wednesdays. Treasury bills are available for a minimum amount of Rs. 25,000 and in multiples of Rs. 25,000. Treasury bills are issued at a discount and are redeemed at par. Treasury bills are also issued under the Market Stabilization Scheme (MSS).
CASH MANAGEMENT BILLS:
CMB’s are a new short-term instrument having common characteristic of T-Bills but with a maturity of less than 91-days. These instruments are issued to meet the temporary disparity in the cash flow of the government. CMB’s too are issued at a discount and redeemed at face value on maturity.
DATED GOVERNMENT SECURITIES:
These instruments are long-term securities which carry a fixed or floating coupon (interest) rate paid on the face value, which is payable at fixed time periods generally half-yearly. The maximum tenure of these securities is 30 years.
These Government securities are issued through auctions conducted by the RBI on the electronic platform called the NDS (Negotiated Dealing System) – Auction platform. The central bank in consultation with the central government issues an indicative half-yearly auction calendar which contains information about the borrowing amount, tenor and the likely period during which auctions will be held. A notification or press release giving exact particulars of the securities and procedure of auction is issued by the government about a week prior to the actual date of auction.
Clearing Corporation of India limited is the clearing agency for G-sec and it acts as a central counter party for all transactions between two counter-parties.