How to Invest in Indian Government Bonds for your Portfolio?

Investing in the various financial instruments will not only diversify your investment but also make your portfolio more stable in terms of returns with low risk factors. Apart from equities, gold, and fixed deposits, your portfolio should also include government bonds.

Government-backed securities are safer than private companies, and investing in the bonds is considered one of the safest and stable sources of income. If you are mulling over purchasing the bonds and looking for information on how to start or invest in such securities, then you have landed at the right place. Here we will discuss about the Government bonds, their types, how to buy and why you should invest.

What are the Government Bonds in India?

Government bonds are debt-based securities issued by the central and state governments to raise funds to finance various projects and public expenditure. This is a kind of loan given by the investor to the government with the promise to repay the principal amount and interest with a predefined maturity date. These bonds are issued by the central or state government with sovereign guarantee and are free from default risk, making them one of the safest investments compared to corporate bonds.

The bonds are issued through the central bank, the Reserve Bank of India, with different maturity dates and interest payments. There are different types of government bonds, with the different maturity periods ranging from a few days to months and spanning up to several decades. Let’s talk about the different types of government bonds available in India and how to invest.

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Types of Government Bonds in India

The government bonds are classified on the basis of their maturity period, interest or coupon rates and redemption criteria. The short-term bonds are mainly called the treasury bills with a maturity period of less than one year. While on the other hand, the long-term debt-based securities are called bonds or dated securities with a maturity period of more than one year.

In India, the Central Government can issue both treasury bills and bonds or dated securities, while the state governments can issue only bonds or dated securities. These state government-issued bonds are also called the State Development Loans (SDLs) with the sovereign guarantee.

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Short-term Securities issued by the Central Government:

Treasury Bills (T-bills)

T-bills are the short-term debt instruments issued by the Central Government of India with different names representing the different tenors – 91 days, 182 days and 364 days. These treasury bills are issued at discount rates but redeemed at the face value at the time of maturity.

For example, a T-bill with the face value of Rs 1,000 might be issued at Rs 950, representing a discount of Rs 50 or 5%. It would be redeemed at the face value of Rs 1,000 upon maturity. The investor’s return is the difference between the face value or maturity value and the issue price of the T-bill.

Recommended Read: Treasury Bills Repurchase (TREPS)

Cash Management Bills (CMBs)

Introduced by the RBI in 2010 to adjust temporary mismatches in the central government’s cash flows, Cash Management Bills are also short-term government bills. However, it is different from T-bills in terms of maturity period.  CMBs have a maturity period of less than 91 days, shorter than T-bills.

Long-term Securities Issued by the Central Government:

Also called the Dated G-Secs or Dated Government Securities, these are the long-term bonds issued by the central government that carry a fixed or floating coupon (interest rate). The interest on Dated G-Secs is paid on the face value on a half-yearly basis with a maturity period ranging from 5 years to 40 years.

Fixed Rate Bonds: The fixed-rate bonds are issued with fixed coupon rates, which means the rate of interest paid to investors will be fixed till the maturity of the bond. Most of the bonds in India are issued with fixed rates, in which the interest rates are not affected by the fluctuating market rates.

Floating Rate Bonds: Unlike fixed-rate bonds, floating-rate bonds are issued with variable coupon rates. Meaning, the rate of interest paid to the investors does not remain fixed till the date of maturity; it keeps fluctuating as per the benchmark rates. However, the coupons are reset at pre-announced intervals, usually every six months or one year, while the maturity date remains fixed on such bonds.

Capital Indexed Bonds: These types of bonds are issued to protect the principal amount of the investors against inflation. The maturity amount of the investor is adjusted as per the inflation rates in India during the bond’s term, based on the bond’s maturity period.

Inflation-Indexed Bonds: These types of bonds are issued to safeguard the interest rates and principal amount of the investors from the inflation. Though these types of inflation index bonds were initially issued in the UK in 1981, the Government of India, through the RBI, issued IIBs in 2013.

Bonds with Call/Put Options: These types of Government bonds are featured with call and put options. A bond with a call option gives the issuer a right to buy back the bonds at par value, and a bond with a put option gives the investor a right to sell the bond to the Government at par value on any of the half-yearly coupon dates.

Sovereign Gold Bond: These bonds are linked to the price of Gold in the market and issued in lieu of market borrowing. The bond is issued with fixed interest payments, and the principal amount is linked to the prevailing market price of gold. The bonds shall be denominated in units of one gram of gold and multiples thereof.

7.75% Savings (Taxable) Bonds, 2018: These tax-saving bonds are issued in 2018 to replace the 8% savings bonds. As the name suggests, the interest earned on these bonds is subject to taxation as per the investor’s applicable income tax slab, making it suitable for risk-averse investors.

Special Securities: These types of bonds are special securities issued as compensation in lieu of cash subsidies to entities like Oil Marketing Companies, Fertiliser Companies, the Food Corporation of India, etc. Bonds with longer maturity periods typically offer a slightly higher coupon compared to the yield of dated securities with similar maturities. Bond holders can liquidate these securities in the secondary market to banks, insurance companies and primary dealers involved in bond trading.

Recommended Read: Types of Government Securities in India

Securities Issued by the State Government:

State Development Loans (SDLs): These are the long-term securities issued by the state governments, also called the State Development Loans (SDLs). These SDLs are the long-dated ( 10 or more years) bonds with the interest payments at half-yearly intervals, with the principal repayments on the maturity date.

Zero-Coupon Bonds: These are the bonds issued with no coupon rates, which means investors will not get any interest payment. Here, the returns are the difference between the issue price and redemption value at the time of maturity. However, these zero-coupon bonds are issued at a discount and redeemed at the face value.     

How to Buy Government Bonds in India?

Purchasing government bonds from the right place and from reliable sources is one of the most important aspects. However, there are various options and designated places authorised by the government to buy and sell government bonds in India. Below you can find various modes of investing in bonds.

Primary Auctions

When the government first issues bonds, it conducts a primary auction to sell the bonds into the primary market through different modes of channel distribution, as listed below.

Designated Banks: Almost all the banks in India are allowed to offer bond sales to their retail customers. You can visit your bank’s branch or use the online platforms to participate in the bidding for such bonds.

Authorised Dealers: Apart from banks, RBI-authorised primary dealers can also participate directly in the government securities. Though these dealers act as an underwriter for the government bonds, you can also approach these primary dealers to submit your bonds in the primary markets.

Stock Exchanges (NSE & BSE): This is one of the most suitable ways to buy government bonds in India. Retail investors like you can directly participate in the bond auction through NSE and BSE, but you should have a trading and demat account with a SEBI-registered broker.     

Secondary Auctions

After issuing the bonds into the primary market, it is also available in the secondary market for trading and investing. The secondary market is one of the preferred platforms for trading issued bonds. And there are various ways to invest through the secondary market.

Stock Exchanges: The government bonds are listed on all the leading stock exchanges, like NSE and BSE. And you can place your orders to buy the desired quantity of bonds through your broker or online trading platform.

Electronic Trading Platform: Various designated banks and financial institutions are also allowed to provide the online trading platform to buy the government bonds in the secondary market.

Mutual Funds/Debt Funds: Apart from directly purchasing the government bonds, you can also invest in the mutual funds and bond-based funds like debt funds and gilt funds. The corpus of these funds is mainly invested in government bonds and similar securities backed by expert fund managers.     

Retail Direct

RBI has introduced this mode of investment later for the retail investors to directly interact with RBI to purchase the bonds issued by the Government. Using the “Retail Direct”, you directly participate in the primary bond auction market to invest in such highly secured securities for your portfolio.

Conclusion: Why Invest in Government Bonds?

Government bonds are one of the safest and most stable securities backed with a sovereign guarantee, providing an opportunity to investors not only to diversify their portfolio but also to get balanced returns. Risk-averse investors looking to invest in long-term securities not impacted by any market fluctuation or economic slowdown can choose to invest in government bonds.

However, you can choose from short-term securities like treasury bills and cash management bills or invest in long-term securities like fixed-rate bonds, floating-rate bonds, capital or inflation-indexed bonds and sovereign gold bonds as per your time horizon and returns prospects. And to buy these bonds, you can either participate in the primary auctions or buy from the secondary markets through various distribution channels like designated banks, bond dealers, stock exchanges, brokers and online platforms.

• Author: Religare Broking
• Last Updated: September 8, 2025