Who owns Government Bonds? Are they for you?3 min read
So , in the last article we talked about what government bonds are and how important they are in today’s times. Today, we’ll be understanding whether people really do buy government bonds, and if so.. Who are these people?? And should you be one of them ?
Before we start, let me give you some perspective.There are around 85 Lakh Crores worth of government bonds out there in the market. 8,50,00,00,00,00,000! Too big ?? To make more sense of this number, India’s latest GDP was 147 Lakh Crores, so that comes to around 60% of our G.D.P! :O. Government Bonds have typically been an investment choice of institutions and the big boys’ clubs due to high minimum investment.
Banks, Insurance Companies and the RBI together own around 80% of these bonds. The rest 20% is divided amongst all the other institutions, asset management companies and other companies. So, how much do individuals like us own?? Well it’s not even 1% 🙁 This is one of the safest places to invest your money in, but individuals don’t own even 1% of it. So if you own a Government Bond you’re easily one in a million! )
It’s not that individuals cannot own government bonds, it’s just that access to these government bonds have been very difficult in the past. The Government has come out with platforms and schemes over the last few years to ease the process for individuals to own bonds but none of them have actually taken off, yet. Hopefully in the coming years, this changes.
So, now that we know in whose hands these government bonds are, are they really worth owning? Well you know, it depends! Mainly on the rate of interest you would get from the Bond and the safety of that Bond. Safety wise, we’d probably compare it to a Fixed Deposit from a Bank. The bank is more likely to go bankrupt and not pay you your money back compared to our Government. RBI does insure your Bank Deposits up to an amount of 5 Lakhs but the Government doesn’t need to have any such limit. They will pay you back what you are owed.
Now , coming to the part of what rate of interest you would receive from that bond! Historically Government bonds have been at rates close to Fixed Deposits rates or lower. But recently, you can get anywhere between 1-2% more on government bonds than most Fixed Deposits.
As of August 2022 ,
3 Year FD’s ( SBI , HDFC Bank , ICICI Bank ) – Between 5.2% – 5.9%
3 Year Government Bond Rate – Around 6.75%
5 Year FD’s ( SBI , HDFC Bank , ICICI Bank ) – Between 5.4% – 6%
5 Year Government Bond Rate – Around 7%
10 Year FD’s ( SBI , HDFC Bank , ICICI Bank ) – Between 5.5% – 6.5%
10 Year Government Bond Rate – Around 7.3%
Source : ccilindia.com , www.bankbazaar.com
So yes, at this point in time we are getting more in government bonds. There may come a time when this changes but so would everything else. All we can look at is what we get now.
Both of these investments are options for people looking for more stable returns year on year. If you have a higher risk appetite then, you can always invest or trade in shares.
That’s it for now! We’ll be back with more.
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