2 G-Sec bond options to invest right now

About 10 days ago, we alerted you about the upcoming opportunities you will have in the bond market as we move up the rate cycle. Today, we are recommending 2 government securities (G-secs) that are out as auction in the RBI Retail Direct portal. You might want to check if your brokerage has the option to buy these. 

(We would recommend opening an account with RBI Retail Direct as not all issuances are available even with large brokerages like Zerodha.  Also, secondary market sale, if you wish to offload these bonds, are better done through the RBI Retail Direct’s NDS-OM secondary market platform.)

Before we move to the recommendations, here are a few things you need to know if this is the first time you are venturing into G-Secs.

Please note that it may take a few days before your account opens. If you don’t have one, open it and participate in future issuances that we recommend.

2 G-Sec bond options to invest right now

The opportunity

We once again capture (below) what we stated in our report on April 21, 2022 about opportunities in the bond market:

Bond yields have already been drifting up in the last year with rising inflation making players wary of rate hikes. The main bond benchmark, the 10-year government security (g-sec), after seeing its yield fall to 5.8% in mid-2020 was trading at 7% just before the policy review. Post-policy it has moved up to 7.15%. G-sec yields for other tenures have risen too, with much of the increase coming in the last four months.

Medium term g-secs of 3-5 year tenures had a lot of catching up to do and thus have shown a sharper spike than the 10-year security since January. 

With yields on 10-year central g-secs already at 7.15%, we expect the next few weeks/months to throw up good opportunities for long-term debt investors to lock into very decent yields of 7.5-8% on the safest bonds in the market for 10 year, 15 year, 20 year and even longer terms. This situation will also present a good opportunity to make long term allocations to 10-year constant maturity debt funds and gilt funds for a buy and hold strategy”.

In line with the above, we have identified 2 opportunities in the present auction by the Central government. One is a 4-year G-Sec with maturity in 2026 and indicative yield of 6.68% and the other is a 13-year G-Sec maturing in 2035 with indicative yield of 7.33%.

You need to know the following:

  • There is a coupon rate (the interest you will earn) mentioned when you bid. And there is always an indicative yield that is mentioned. The actual yield you will get on allotment will be the ‘effective interest rate’ for you based on the price at which the issue is allotted to you. Yield is nothing but the interest income dividend by the purchase price.
  • The yield will be known only after the auction closes. Therefore, at the time of applying, you may be sometimes asked to pay a little more than the amount you bid for, as a mark-up. The same will be refunded based on what the final yield is. 
  • Interest payments on these instruments are credited half-yearly. There is NO cumulative option. There is no TDS deducted. However, interest is fully taxable at your slab rate. 
  • In our calls, we will mention the bidding opening and closing dates, and the last dates for UPI and net banking transfers. Please note that the net banking option closes early. You need to invest quickly before the window closes. You can use UPI as well, which closes later, but note that the UPI limit is Rs 2 lakh only. Make sure the bank account linked to UPI is the same as the bank details given when you opened the RBI account. 
  • The bonds you buy through RBI Retail Direct will NOT get into your demat account. It will be credited and held in Retail Direct Gilt (RDG) account. You can sell them through the RBI Retail Direct Secondary market account, for which you will have access when you open an RBI Direct Gilt account. 
  • Very importantly, we have nothing to do with the operational aspects of these bond issues. Kindly DO NOT WRITE TO US with queries on your allotment or bidding status. Our job would only be to alert you on timely opportunities. Write to support@rbiretaildirect.org.in for any queries or call their customer support. We have tried this over the past month and have found them to be responsive. 

Please read this detailed FAQ from RBI if you wish to know about bond issue price and yields. You can also read this explainer on the RBI Retail Direct platform that we wrote earlier. In general, the window for these auctions is very short. You have to keep tabs of our mail alerts on these recommendations and act fast.

Suitability of the bonds

  • The 2026 maturing G-Sec is ideal for those who are looking for a less than 5-year lock-in into bank deposits. Currently SBI’s 4-5 year deposits are at 5.45-5.5%. This 4-year G-Sec offers an indicative yield of 6.68%. It is unlikely that bank deposits will touch this rate. So, for those looking for options right now, this would work. It is ideal for those looking for income options and in a lower tax bracket. 
  • The 2035 maturing G-Sec bond is suitable as a long-term buy-and-hold option given the attractive yields. It is ideal for those who want to set up a steady income stream. It can also be used by those who want to preserve capital even if they don’t need the interest income. But you need to make sure the interest is redeployed into building wealth. 
  • These bonds are primarily for buy-and-hold purposes. The issue size of both these bonds are large enough to have decent liquidity in case they need to be sold in the secondary market. You can choose either of the bonds based on your timeframe. 
  • There may be mark-to-market loss as rates move up. You need not worry if you are holding the bond till maturity. A longer maturity bond’s price will be more sensitive to rate movements. For example, a 10-year G-Sec can have higher mark-to-market losses than a 4-year G-Sec when rates move up. The reverse is also true when rates fall. So, unless you are a buy and hold investor, you should know when to exit if you plan to sell midway.

Please note that like we stated in our earlier article, you will need to spread investments and not deploy your entire surplus now. It is difficult to precisely time the rate hike. We will be giving calls at higher rates as well. Therefore, you can reserve some amount for later. You can also build a barbell strategy by mixing bonds across duration, using mutual funds for shorter periods.

View our list of bond recommendations here.

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10 thoughts on “2 G-Sec bond options to invest right now”

  1. Senthilnayagam

    Are all SDLs at par on risk? Can we simply pick one with a high interest rate? For example, Haryana 2035 is listed now at 7.96%.

    1. All SDLs are not part at risk. Individual state finances determine. We take into account time frame and the state of finances. In case fo Haryana over 10 year. in our view, was not a sweet spot. Vidya

  2. Thank you team for the timely recommendations. Always look forward to it. Wanted to get a clarity, if the recommendation stand as it is post today’s rate hike by the RBI? Will it be prudent to wait out a little more time for the increased rates to play out or is it already factored in with the current recommendations? Thanks!

    1. Please write to us directly for such queries as it will come through support and help us keep track and answer promptly. Use blog for general discussions. It holds good but auction is closed. More should come up. Vidya

  3. Considering the taxability of these bonds and me not needing regular income, I dont know if Bharat Bond ETFs are better ? Today, BB ETF Apr 2030 is quoting a YTM of 7.24% (Edelweiss site) – benefit of LTCG seems to make BB more attractive ? Am I interpreting this properly ?

    1. We are giving g-Sec options here and have stated suitability – which means 100% safety of corpus. Of course Bharat Bond ETFs can be invested in. Some of them are already part of Prime ETF recommendations. Kindly check. thanks, Vidya

  4. manaschoudhury

    Greetings. Thank you for the article. Just curious why ” GOI FRB 2028 ” is not recommended . Is it because we don’t anticipate the 182 day T bill will go up to match the proposed 2026/2035 Gsec Coupon rate ?

  5. dayalan jayaraman

    Dear Madam / Sir,
    Thanks for your recommendation.
    I have one query. I have capital of 5 L. My confusion is investing in the 2035 maturing G-Sec bond (or) Equitas bank Saving account offering 7 % for 5 lakhs above. Do investing in G-Sec bond is safe bet locking for 13 years @ 7.33%. I am planning for long term. kindly suggest.

    1. Investing in Large Small finance banks like Equitas for up to Rs 5 lakh is fine. thanks, Vidya

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