Ppt

Submitted to : Prof. James
Varghese.
Wednesday, December 6,
2017 1

CONTENTS
 Introduction.
 Government Securities market.
 Types of government securities.
 Govt. security market instruments (G-sec’s).
 Previous Year Questions.
 Conclusion.
 Reference.
Wednesday,December6,
2017
2

A Government security is a tradable instrument issued by
the Central Government or State Government. The Government Securities
Market in India was developed in order to consolidate the large borrowings by
the Government of India to fund its expenditures on a regular basis. The
expenses, collectively labelled under .The Fiscal Policy differ every year
depending upon the Government's economic as well as political agenda, with an
eye on infrastructural and social development in the country.
Wednesday, December 6, 2017 3

Securities issued by central government or
state government is termed as Government Securities
(G-SECs). “Government security” means a security
created and issued by the government for the purpose
of raising a public loan or for any other purpose. It can be issued in the form of a
promissory note ,bearer bond, stock certificate etc…..
Such securities are short term (usually called treasury bills,
with original maturities of less than one year) or long term (usually called Government
bonds or dated securities with original maturity of one year or more).

Govt. securities can be classified into the following :
1.Dated Securities:
Dated Government securities are long term securities or
bonds of the government that carries a fixed or floating coupon (interest
rate). Securities are issued by the government (centre or state) for
mobilizing funds. Mostly financing the fiscal deficit is the most important
purpose for issuing the dated securities. The remuneration for buying the
dated securities is the interest payment which are called coupon. The
interest payment is fixed and is a percentage of the face value of the
security. Interest is paid at regular intervals (usually half-yearly). The
tenor of dated securities can be up to 30 years. But the most common
tenure is five year and ten year.

2. Zero coupon Bonds :
A zero-coupon bond, also known as an
"accrual bond," is a debt security that doesn't pay interest (a
coupon) but is traded at a deep discount, rendering profit at
maturity when the bond is redeemed for its full face value.Some
zero-coupon bonds are issued as such, while others are bonds
that have been stripped of their coupons by a financial
institution and then repackaged as zero-coupon bonds. Because
they offer the entire payment at maturity, zero-coupon bonds
tend to fluctuate in price much more than coupon bonds.
Continues……

Continues……
3. Partly paid Stock:
Any share whose full value has not
been reimbursed for by the holders. A 'call' must
be issued by the firm in order to collect the
pending amount. This is a stock where payment
of principal amount is made in instalments over
a given time frame.

Continues……
4.Floating rate Bonds :
Bond whose interest amount
fluctuates in step with the market interest rates,
or some other external measure. Price of
floating rate bonds remains relatively stable
because neither a capital gain nor a capital loss
occurs as market interest rates go up or down

Continues……
5.Bonds with call/Put option:
A callable bond (also called redeemable
bond) is a type of bond (debt security) that allows
the issuer of the bond to retain the privilege of redeeming
the bond at some point before the bond reaches its date
of maturity .In other words, on the call date(s), the issuer
has the right, but not the obligation, to buy back the
bonds from the bond holders at a defined call price.
Technically speaking, the bonds are not really bought and
held by the issuer but are instead cancelled immediately.

Continues……
6. Capital Indexed Bonds :
The most common form of inflation linked
bond is the capital indexed bond (CIB). Simply, CIBs are a bond
whose base payment rises and falls with the Consumer Price
Index (CPI).
CIBs have their capital, or the principal
amount of the bond, indexed (usually quarterly) with the revised
capital amount due for repayment at maturity.
As indexation increases the principal value of the security over
time, the amount due at maturity becomes greater so your
capital is protected against the perils of inflation.

Continues……
7.Fixed rate Bonds:
In finance, a fixed rate bond is a type of debt
instrument bond with a fixed coupon (interest) rate, as opposed to a floating
rate bonds. A fixed rate bond is a long term debt paper that carries a
predetermined interest rate. The interest rate is known as coupon rate and
interest is payable at specified dates before bond maturity. Due to the fixed
coupon, the market value of a fixed-rate bond is susceptible to fluctuations in
interest rates, and therefore has a significant amount of interest rate risk. That
being said, the fixed-rate bond, although a conservative investment, is highly
susceptible to a loss in value due to inflation. The fixed-rate bond’s long
maturity schedule and predetermined coupon rate offers an investor a
solidified return, while leaving the individual exposed to a rise in the
consumer price index and overall decrease in there purchasing power.
2017
11

Continues……
8. STRIPS :
Treasury STRIPS are fixed income
securities sold at a significant discount to face value
and offer no interest payments because they
mature at par. STRIPS is an acronym for Separate
Trading of Registered Interest and Principal of
Securities. These zero-coupon bonds come about
when the bond's coupons are separated from the
bond or note; an investor's return is determined by
the difference between the purchase price and the
bond's trading value, or face value if held to
maturity.
Wednesday,
December 6,
2017
12

Wednesday, December 6, 2017
13
Following are the different G-Sec’s :
1. Treasury Bills :
Treasury bills or T-bills, which are money market
instruments, are short term debt instruments issued by the Government of India and
are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury
bills are zero coupon securities and pay no interest. They are issued at a discount and
redeemed at the face value at maturity.
The Reserve Bank of India conducts auctions usually
every Wednesday to issue T-bills. Payments for the T-bills purchased are made on the
following Friday. The 91 day T-bills are auctioned on every Wednesday. The Treasury
bills of 182 days and 364 days tenure are auctioned on alternate Wednesdays. T-bills
of 364 days tenure are auctioned on the Wednesday preceding the reporting Friday
while 182 T-bills are auctioned on the Wednesday prior to a non-reporting Fridays. The
Reserve Bank releases an annual calendar of T-bill issuances for a financial year in the
last week of March of the previous financial year. The Reserve Bank of India
announces the issue details of T-bills through a press release every week.

Continues….
2. Cash Management Bills (CMBs) :
Government of India, in consultation with the
Reserve Bank of India, has decided to issue a new short-term instrument,
known as Cash Management Bills (CMBs), to meet the temporary
mismatches in the cash flow of the Government. The CMBs have the
generic character of T-bills but are issued for maturities less than 91
days. Like T-bills, they are also issued at a discount and redeemed at
face value at maturity. The tenure, notified amount and date of issue of
the CMBs depends upon the temporary cash requirement of the
Government
The announcement of their auction is made by
Reserve Bank of India through a Press Release which will be issued one
day prior to the date of auction. The settlement of the auction is on T+1
basis. The non-competitive bidding scheme has not been extended to the
CMBs. However, these instruments are tradable and qualify for ready
forward facility. Investment in CMBs is also reckoned as an eligible
investment in Government securities by banks for SLR purpose under
Section 24 of the Banking Regulation Act, 1949.

Continues….
3. Dated Government Securities :
Dated Government securities are long term securities and
carry a fixed or floating coupon (interest rate) which is paid on the face
value, payable at fixed time periods (usually half-yearly). The tenor of
dated securities can be up to 30 years. n case there are two securities
with the same coupon and are maturing in the same year, then one of
the securities will have the month attached as suffix in the
nomenclature. For example, 6.05% GS 2019 FEB, would mean that
Government security having coupon 6.05 % that mature in February
2019 along with the other security with the same coupon,
namely,6.05% 2019 which is maturing in June 2019.

2017
16
Continues….
4. State Development Loans (SDLs) :
State Governments also raise loans
from the market. SDLs are dated securities issued
through an auction similar to the auctions conducted
for dated securities issued by the Central Government
(see question 3 below). Interest is serviced at half-
yearly intervals and the principal is repaid on the
maturity date. Like dated securities issued by the
Central Government, SDLs issued by the State
Governments qualify for SLR. They are also eligible as
collaterals for borrowing through market repo as well
as borrowing by eligible entities from the RBI under the
Liquidity Adjustment Facility (LAF).

2017
17
Previous Year Question papers
1.What is a treasury bill ? (2016)
2.What are the different types of Govt. securities ? (2016)
3.What do you mean by Govt. securities market ? (2015)

The Government Securities market has grown by leaps and
bounds over the last decade. Initially only catering to captive
investors, it has become a vibrant investment destination for
institutional and individual investors alike, especially at a
time when global equity markets have been through a
turbulent phase. For foreign investors particularly, it has
offered a lucrative double benefit of high yield as compared to
the rest of the world, as well as relatively risk free investment.

This assignment has been referred from the following sources :
INTERNET :
 http://www.businessdictionary.com
 http://www.fiig.com
 https://en.wikipedia.org
 https://www.investopedia.com
 http://thelawdictionary.org
BOOKS :
 Capital Market (by Dr.A.J.GEORGE & ANISH THOMAS ).
 Capital Market & investment management (by Dr.M.S.KHAN ).
 Financial Institutions & market (by Jeff Madhura ).

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