G-Sec on Zerodha

Government Securities (G-Secs) are sovereign debt instruments issued by the Government of India through the Reserve Bank of India (RBI) to finance fiscal deficits. They are considered the safest category of fixed-income instrument in India, carrying zero credit risk as they are backed by the sovereign guarantee of the Government of India. Zerodha provides retail investor access to G-Secs through two routes: exchange-traded secondary market G-Secs via Kite, and a linkage to the RBI’s Retail Direct scheme for primary auction participation.

Types of Government Securities

G-Secs comprise three main categories:

Dated securities (long-term)

Dated G-Secs are coupon-bearing bonds with maturities ranging from 1 year to 40 years. They pay a fixed semi-annual coupon (interest) and return the face value (Rs 100 per unit) at maturity. Current outstanding tenors include 5-year, 7-year, 10-year, 14-year, 20-year, and 40-year securities. The 10-year G-Sec yield is widely tracked as the benchmark for risk-free rate in Indian markets.

Treasury Bills (T-Bills)

T-Bills are short-term government instruments with maturities of 91 days, 182 days, and 364 days. They are zero-coupon instruments issued at a discount and redeemed at face value. T-Bills are covered in a separate article.

State Development Loans (SDLs)

SDLs are securities issued by individual state governments, also intermediated by RBI. They carry a slightly higher yield than central government G-Secs (typically 30 to 50 basis points above the comparable-maturity G-Sec) to reflect the additional credit risk of state governments.

RBI Retail Direct scheme

RBI’s Retail Direct scheme (launched November 2021) allows individual investors to open a Retail Direct Gilt Account (RDGA) directly with RBI and participate in primary G-Sec auctions as well as secondary market transactions through the RBI Retail Direct portal (rbiretaildirect.org.in).

Zerodha provides information about Retail Direct and directs clients interested in primary G-Sec auctions to the RBI Retail Direct portal. Zerodha itself does not intermediate primary G-Sec auction applications for retail clients; this distinguishes G-Secs from IPO applications where Zerodha acts as a SEBI-registered intermediary.

RBI’s Retail Direct auction calendar is published quarterly. Auctions typically occur on Fridays. The minimum investment for retail investors in primary auctions is Rs 10,000 with multiples of Rs 10,000 thereafter.

Exchange-traded G-Secs on Zerodha

Secondary market G-Secs trade on NSE’s Wholesale Debt Market (WDM) and on the NDS-OM (Negotiated Dealing System - Order Matching) platform operated by RBI. For retail investors, NSE’s exchange-traded G-Sec segment (introduced following SEBI and RBI collaboration) provides an accessible way to buy and sell G-Secs.

Through Kite, investors can search for specific G-Sec ISINs (e.g., “IN0020210016” for the 10-year G-Sec) and place buy or sell orders in the debt market segment. Price discovery is by yield-to-maturity (YTM); the Kite interface displays both price and yield.

Liquidity on the exchange-traded retail G-Sec platform is lower than on the institutional WDM segment. Bid-ask spreads for retail lot G-Sec transactions can be 10 to 30 basis points in yield terms.

Lot size and face value

Exchange-traded G-Secs are available in lots of Rs 10,000 face value, making them accessible to retail investors. Each unit has a face value of Rs 100; the minimum tradeable lot is 100 units (Rs 10,000 face value).

Settlement

G-Sec trades on the exchange settle on T+1. Settlement is in demat form; G-Sec units are held in the investor’s demat account at CDSL or NSDL. Coupon payments (interest) are credited directly to the bank account linked with the demat account.

Yields and pricing

G-Sec prices move inversely with yields. When the 10-year G-Sec yield rises from 7.0% to 7.5%, the price of a 7.0% coupon 10-year G-Sec falls below par. Investors holding G-Secs to maturity receive the face value regardless of market price fluctuations; price risk only materialises if the investor sells before maturity.

The modified duration of a G-Sec indicates its price sensitivity to yield changes. A 10-year G-Sec with a modified duration of 7 will see approximately a 7% price change for a 1% change in yield. Investors should understand duration risk before buying long-tenor G-Secs.

Gilt mutual funds as an alternative

Retail investors seeking G-Sec exposure without managing individual bond positions often use gilt mutual funds, available through Zerodha’s Coin platform. Gilt funds invest exclusively in G-Secs and SDLs. They offer:

• Diversified portfolio of multiple G-Secs across tenors.
• Professional management of duration risk.
• Daily liquidity (redemption at NAV).
• No minimum investment beyond the fund’s minimum SIP/lump-sum amount.

Gilt funds carry interest rate risk (NAV falls when yields rise) but no credit risk. Their tax treatment is the same as other debt mutual funds post the Finance Act, 2023.

Brokerage and charges

For exchange-traded G-Secs via Kite:

Tax treatment

Coupon interest

Interest income from G-Secs is taxable as “Income from Other Sources” at the investor’s applicable slab rate. TDS does not apply to G-Sec interest paid to resident individuals (unlike corporate bonds). The investor must self-declare and pay tax on G-Sec interest.

Capital gains on sale

If sold before maturity in the secondary market:

• Short-term capital gains: Holding period less than 36 months; taxed at slab rate.
• Long-term capital gains: Holding period 36 months or more; taxed at 20% with indexation under Section 112.

Maturity proceeds

At maturity, the investor receives the face value (Rs 100 per unit). No capital gains tax arises if purchased at face value (par). If purchased at a discount in the secondary market, the difference between purchase price and redemption at par may be treated as interest income (as per CBDT guidance on zero-coupon bonds).

References

1. RBI, Government Securities Market in India: A Primer (RBI publication).
2. RBI Retail Direct Scheme, Operational guidelines (2021).
3. SEBI Circular, Exchange-traded G-Sec framework for retail investors.
4. Income Tax Act, 1961, Section 112, Section 194A (TDS on interest).
5. NSE Wholesale Debt Market, Segment specifications.