Question

What are the characteristics of Government Securities?

Answer 1

1. Agencies: Government securities are issued by agencies such as Central Government State Governments, semi-government authorities like local Government authorities.
2. RBI Special Role: RBI takes a special and active role in the purchase and sale of these securities as part of its monetary management exercise.
3. Nature of Securities: Securities offer a safe avenue of investment through guaranteed payment of interest and repayment of principal by the Government.
4. Liquidity Profile: The liquidity profile of gilt-edged securities varies. Accordingly, the liquidity profile of securities issued by the Central Government is high.
5. Tax Rebate: A striking feature of these securities is that they offer a wide range of tax incentives to investors.
6. Market: As each sale and purchase has to be negotiated separately, the Gilt-Edged Market is an Over-The-Counter Market.
7. Forms: The securities of Central and State Government take such forms as inscribed stock or stock certificate, promissory note, and bearer bond.
8. Participants: The participants in the Government securities market include the Government sector comprising Central and State Governments
9. Trading: Small and less active, banks and corporate holders who purchase and sell Government securities on the stock exchanges participate in trading.
10. Issue Mechanism: The Public Debt Office (PDO) of the RBI undertakes to issue government securities.
11. Issue opening: A notification for the issue of the securities is made a few days before the public subscription is open.
12. Grooming Gradual: It is the acquisition of securities nearing maturity through the stock exchanges by the RBI.
13. Switching: It is the purchase of one security against the sale of another security carried out by the RBI in the secondary market as part of its open market operations.
14. Auctioning: A method of trading whereby merchants bid against one another and where the securities are sold to the highest bidder.