Types of Government Bonds in India – Which One is Right for You?

Post Date : March 29, 2025

Types of Government Bonds in India – Which One is Right for You?

Disclaimer: Investments in the securities market are subject to market risks. This content is for educational purposes only and does not constitute financial advice.

Government bonds are a versatile investment tool, offering various options to suit different investor needs. Whether you’re looking for fixed returns, inflation protection, or gold-linked investments, there’s a government bond for you. 

Let’s explore the different types of government bonds available in India:-

1. Fixed-Rate Bonds

These bonds offer a fixed interest rate throughout the investment tenure, making them ideal for investors seeking predictable returns.

• Example: A bond labeled 7% GOI 2021 offers a 7% interest rate until its maturity in 2021.

2. Floating Rate Bonds (FRBs)

FRBs have interest rates that are periodically adjusted based on market conditions. Some FRBs combine a base rate with a fixed spread, determined through auctions.

3. Sovereign Gold Bonds (SGBs)

SGBs allow you to invest in gold without holding physical gold. The bond’s price is linked to the market price of gold, and interest is paid semi-annually at 2.50%.

• Tax Benefits: Interest earned is tax-free.
• Maturity: 8 years, with an option to redeem after 5 years.

Example: If Mr. A invested in an SGB on 1st April 2014, interest disbursals would occur on 1st May 2014 and every six months thereafter. If he decides to redeem the bond on 1st June 2019, he would need to wait until 1st November 2019 (the next interest disbursal date) to receive the redemption amount.

4. Inflation-Indexed Bonds (IIBs)

IIBs protect your investment from inflation by adjusting both the principal and interest payments based on inflation indices like the Consumer Price Index (CPI) or Wholesale Price Index (WPI).

5. 7.75% GOI Savings Bond

Introduced in 2018, these bonds offer a fixed interest rate of 7.75% and are available to individuals, HUFs, and minors (through guardians).

• Taxation: Interest is taxable as per the investor’s income tax slab.
• Minimum Investment: ₹1,000, with multiples thereof.

6. Bonds with Call or Put Options

These bonds allow the issuer (government) to buy back the bond (call option) or the investor to sell it back (put option) after 5 years.

7. Zero-Coupon Bonds

Zero-coupon bonds do not pay periodic interest. Instead, they are issued at a discount and redeemed at face value, with the difference representing the investor’s earnings.

Open your Demat Account  today to invest in government bonds.

Advantages of Government Bonds

1. Safety: Backed by the Indian government, these bonds are virtually risk-free.
2. Regular Income: Interest is paid semi-annually, providing a steady income stream.
3. Inflation Protection: Bonds like IIBs and SGBs offer protection against inflation.
4. Tax Benefits: Some bonds, like SGBs, offer tax exemptions on interest earnings.

Who Should Invest in Government Bonds?

• Risk-averse investors seeking secure, low-risk investments.
• Long-term investors looking to diversify their portfolios.
• Beginners who want to start investing without exposure to market volatility.

FAQs

1. How do you buy government bonds?
   Submit a completed application form to the Reserve Bank of India (RBI) or the central government. Once processed, you’ll receive a bond certificate.

1. How to invest in government bonds in India?
   • Invest through GILT mutual funds.
   • Open a Demat Account with a bank or brokerage platform like RMoney.

1. Are government bonds tax-free?
   While interest income is taxable, some bonds like SGBs offer tax exemptions on interest earnings.

1. What is the current interest rate on government bonds?
   For I bonds issued from November 2022 to April 2023, the composite rate is 6.89%.

Conclusion

Government bonds offer a wide range of options to suit every investor’s needs. Whether you’re looking for fixed returns, inflation protection, or gold-linked investments, there’s a government bond for you.

Need Help?
Contact RMoney:

• Phone: 0562-4266600 / 0562-7188900
• Email: askus@rmoneyindia.com