PRESENTATION ON GOVERNMENT (GILT EDGED)

SECURITIES MARKET

BY :GROUP-3

ANKITA GOYAL

HITESH NANDAWANA

PIYUSH SINGH

SUNIK GUPTA

MONIKA PATHAK

SOURABH SHRIVASTAV

MEANING

The gilt-edged market refers to the market for Government and semi-government securities, backed by the Reserve Bank of India (RBI).

Government securities are tradeable debt instruments issued by the government authorities for meeting its financial requirements.

The term gilt-edged means 'of the best quality'. This is because the Government securities do not suffer from risk of default and are highly liquid (as they can be easily sold in the market at their current price).The open market operations of the RBI are also conducted in such securities.

Issued at face value No default risk as the securities carry

sovereign guarantee. Ample liquidity as the investor can sell the

security in the secondary market Interest payment on a half yearly basis on

face value No tax deducted at sources

Features of Government Securities

Can be held in D-mat form. Rate of interest and tenor of the security

is fixed at the time of issuance and is not subject to change.

Redeemed at face value on maturity Maturity ranges from of 2-30 years.

Debt InstrumentsType Typical Features

Central Government Securities long term bonds issued by RBI on behalf of GOI.Coupon payment are semi annually

State Government Securities long term bonds issued by RBI on behalf of state govt.Coupon payment are semi annually

Government – Guaranteed Bonds long term bonds issued by govt agencies and guaranteed by central or state govt.Coupon payment are semi annually.

PSU(public sector units) long term bonds issued by PSU.51% govt equity stake

Corporate Medium term bonds issued by private companies.Coupon payment are semi annually

Government Securities will be issued for a minimum amount of Rs.10,000/- (Face Value) and in multiples of Rs.10,000/- thereafter.

Payment for the Government Securities shall be made by the applicants/investors on such dates as mentioned in the Specific Notification, by means of cash or cheque drawn on Reserve Bank of India, Mumbai or any specified office of Reserve Bank of India or Banker's pay order or by authority to debit their current account with Reserve Bank of India or by Electronic Fund Transfer in a secured environment or by any other means as specified by Reserve Bank of India.

MINIMUM SUBSCRIPTION

Auctions

Auctions: Auctions for government securities are normally multiple- price auctions either yield based or price based.

Yield Based: In this type of auction, RBI announces the issue size or notified amount and the tenor of the paper to be auctioned. The bidders submit bids in term of the yield at which they are ready to buy the security. If the Bid is more than the cut-off yield then its rejected otherwise it is accepted.

Price Based: In this type of auction, RBI announces the issue size or notified amount and the tenor of the paper to be auctioned, as well as the coupon rate. The bidders submit bids in terms of the price. This method of auction is normally used in case of reissue of existing government securities. Bids at price lower then the cut off price are rejected and bids higher then the cut off price are accepted.

Procedure for Application

Offers for purchase of Government Securities shall be submitted by interested persons in the form of application as specified by RBI from time to time.

FIIs, NRIs and Overseas Corporate bodies should submit their applications through the designated banks which have been authorized by the Reserve Bank of India to act as a banker to FIIs or authorized to deal in Foreign Exchange as the case may be. Applications duly filled in should be submitted to the office of RBI or any other institution notified for the purpose, before the close of banking hours on the specified date/s.

Payment of Interest

Interest on Government Securities will be paid at the Public Debt Offices of the Reserve Bank of India at Ahmedabad, Bangalore, Bhubaneswar, Kolkata, Hyderabad, Jaipur, Kanpur, Mumbai,etc or any other Office of Reserve Bank of India notified for this purpose from time to time, or at branches of State Bank of India and Associate banks conducting Government business.

Interest on securities held in Bond Ledger Account with any of the Offices of Reserve Bank of India/ Agency as specified by Reserve Bank of India in this behalf, will be paid at such Office/Agency

RECENT DEVELOPMENT IN GOVERNMENT SECURITY MARKET

The NSE Has begun trading in government bonds.

The transaction in Government Security Market which are recorded by the RBI in Special General Ledger account are being published now to attain transparency in the working of the market.

FII in the category of 100% debt funds have been permitted from 30 January 1997 to invest in central and state government securities in both primary and secondary market

TYPES OF GOVERNMENT SECURITIES

The Reserve Bank of India, India's central bank.  It issues government securities as a way of borrowing money to be used by the government. There are many types of government securities issued by RBI:

Dated securities with a fixed maturity date Zero coupon bonds Partly paid stock Floating rate bonds Treasury Bills

Dated Securities

These are generally fixed maturity and fixed coupon securities usually carrying semi-annual coupon. These are called dated securities because these are identified by their date of maturity and the coupon, e.g., 11.03% GOI 2012 is a Central Government security maturing in 2012, which carries a coupon of 11.03% payable half yearly.

Features :

They are issued at face value. Coupon or interest rate is fixed at the time of

issuance, and remains constant till redemption of the security.

The tenor of the security is also fixed. Interest /Coupon payment is made on a half

yearly basis on its face value. The security is redeemed at par (face value) on

its maturity date.

Zero Coupon bonds

These are issued at discount to face value and redeemed at par. These were issued first on January 19, 1994 .

They are issued at a discount to the face value. The tenor of the security is fixed. The securities do not carry any coupon or interest

rate. The difference between the issue price (discounted price) and face value is the return on this security.

The security is redeemed at par (face value) on its maturity date

Partly Paid Stock

It is a stock where payment of principal amount is made in installments over a given time frame. It meets the needs of investors with regular flow of funds and the need of Government when it does not need funds immediately. The first issue of such stock of eight year maturity was made on November 15, 1994 for Rs. 2000 crore.

Features

They are issued at face value, but this amount is paid in installments over a specified period.

Coupon or interest rate is fixed at the time of issuance, and remains constant till redemption of the security.

The tenor of the security is also fixed. Interest /Coupon payment is made on a half yearly

basis on its face value. The security is redeemed at par (face value) on its

maturity date.

Floating Rate Bondso These are bonds with variable interest rate with a

fixed percentage over a benchmark rate. There may be a cap and a floor rate attached thereby fixing a maximum and minimum interest rate payable on it.

o Floating rate bonds of four year maturity were first issued on September 29, 1995, followed by another issue on December 5, 1995.

o Recently RBI issued a floating rate bond, the coupon of which is benchmarked against average yield on 364 Days Treasury Bills for last six months. The coupon is reset every six months.

Features

They are issued at face value. Coupon or interest rate is fixed as a percentage over a

predefined benchmark rate at the time of issuance. The benchmark rate may be Treasury bill rate, bank rate etc.

Though the benchmark does not change, the rate of interest may vary according to the change in the benchmark rate till redemption of the security. The tenor of the security is also fixed.

Interest /Coupon payment is made on a half yearly basis on its face value.

The security is redeemed at par (face value) on its maturity date.   

Treasury Bills

Treasury bills (T-bills) offer short-term investment opportunities, generally up to one year.

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.

Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000

CONTINUED

Treasury bills are issued at a discount and are redeemed at par.

While 91-day T-bills are auctioned every week on Wednesdays, 182-day and 364-day T-bills are auctioned every alternate week on Wednesdays.

The Reserve Bank of India issues a quarterly calendar of T-bill auctions which is available at the Banks’ website. (URL:http://www.rbi.org.in). It also announces the exact dates of auction, the amount to be auctioned and payment dates by issuing press releases prior to every auction.

CONTINUED

Payment by allottees at the auction is required to be made by debit to their/ custodian’s current account.

Who can invest in T-Bill- Banks, Primary Dealers, State Governments, Provident Funds, Financial Institutions, Insurance Companies, NBFCs, FIIs (as per prescribed norms), NRIs & OCBs can invest in T-Bills.

RECENT DEVELOPMENT IN GOVERNMENT SECURITY MARKET

The NSE Has begun trading in government bonds.

The transaction in Government Security Market which are recorded by the RBI in Special General Ledger account are being published now to attain transparency in the working of the market.

FII in the category of 100% debt funds have been permitted from 30 January 1997 to invest in central and state government securities in both primary and secondary market