Government securities are the secret sauce. In this piece, we suggest three ways you can invest in them.
09-Jan-2023 •Ashish Menon
We, as Indians, love our fixed deposit (FD) investments as they are safe and offer steady returns. Even for the more adventurous investors, there are times when the safety of capital takes priority. Looming retirement, economic uncertainty or even recession fears are some such instances. But what if I told you there is a better and safer option than an FD?
Say hello to government securities.
They are safer because countries guarantee interest and repayment of the original investment. A whole country would have to crumble for you not to receive your investment!
They are better than FDs because they offer higher yields (returns), as shown in the table below.
Clearly, government securities have the edge over FDs.
How to invest in government securities
Liquid and short-duration mutual funds do invest in government securities. You can check the 'Analysts' Choice' section to get a list of the best liquid and short-duration funds.
But if you want to play it very safe and want a higher allocation in government securities, you have three options:
Gilt funds
Yield-to-maturity (Expected returns if you invest now and hold it till maturity)
6.09 per cent - 7.68 per cent
RBI Retail Direct
Yield-to-maturity (Expected returns if you invest now and hold it till maturity)
6.39 per cent - 7.69 per cent
Target-maturity funds (TMF)
Yield-to-maturity (Expected returns if you invest now and hold it till maturity)
7.01 per cent - 7.7 per cent
What they are
These funds buy and hold securities with maturities similar to the tenure of the fund. So, if one of these funds has a seven-year maturity, it would invest in securities that also mature in and around the seven-year mark.
These funds also give certain predictability of returns if you hold the fund until maturity. So, if a TMF says it will provide 8 per cent returns after seven years, you can expect to get that percentage of returns if you hold the investment for seven years.
What you should do
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