NSE mobile app GoBid for small investors: Sovereign guarantee in G-Secs but one big risk too

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Published: November 19, 2018 6:45:08 PM

The new App will allow retail investors to invest in treasury bills (T-Bills) of 91 days, 182 days and 364 days and various government bonds from one year to almost 40 years.

National Stock Exchange of India Ltd, NSE, Government Securities, G-Secs, NSE goBID, retail investors, NSE mobile app, NSE web-based platform, Treasury bills, T-bills, Cash Management Bills, CMBs, Dated G-Secs, Fixed Rate Bonds, Floating Rate Bonds, FRB, Zero Coupon Bonds, Capital Indexed Bonds, Inflation Indexed Bonds, IIBs, Bonds with Call/ Put Options, Separate Trading of Registered Interest and Principal of Securities, STRIPS, Sovereign Gold Bond, SGB, oil bonds, fertiliser bonds, food bonds, interest rate risk, capital riskG-Secs also provide opportunity of portfolio diversification and long-term investment avenues.

National Stock Exchange of India Ltd (NSE) has launched its new mobile app and web-based platform ‘NSE goBID’ for retail investors to buy Government Securities (G-Secs). Investments in G-Secs are considered one of the safer investment options available to retail investors as the instruments bear Sovereign guarantee. G-Secs also provide opportunity of portfolio diversification and long-term investment avenues.

The App will be available to all the registered investors with NSE’s trading members and will allow retail investors to make payment directly from their bank accounts using the Unified Payments Interface (UPI) and internet banking.

The ‘NSE goBID’ platform will handle order collection, payment and refund that is currently required to be managed by Trading Members making the process convenient and cost effective.

After a one-time registration, the new App will allow retail investors to invest in treasury bills (T-Bills) of 91 days, 182 days and 364 days and various government bonds from one year to almost 40 years.

Treasury bills (T-bills) are zero coupon securities that pay no interest and are issued at a discount and redeemed at the face value at maturity. For example, a 91-day Treasury bill of Rs 100 (face value) may be issued at say Rs 98, that is, at a discount of Rs 2 and would be redeemed at the face value of Rs 100. The return to the investors is the difference between the maturity value or the face value (Rs 100) and the issue price (Rs 98) that is Rs 2 per T-bill or 7.98 per cent per annum.

Some of the other forms of G-Secs are short-term Cash Management Bills (CMBs), medium- and long-term Dated G-Secs, Fixed Rate Bonds, Floating Rate Bonds (FRB), Zero Coupon Bonds, Capital Indexed Bonds, Inflation Indexed Bonds (IIBs), Bonds with Call/ Put Options, Separate Trading of Registered Interest and Principal of Securities (STRIPS), Sovereign Gold Bond (SGB), Special Securities like oil bonds, fertiliser bonds, food bonds etc.

G-Secs are liquid instruments and are traded actively in secondary market and have a transparent price dissemination mechanism. However, trading in the secondary market poses market risks for the G-Secs as the prices of the securities are influenced by the level and changes in interest rates in the economy and other macro-economic factors, such as, expected rate of inflation, liquidity in the market, etc.

So, if you buy a long-term G-Sec with low coupon rate and subsequently G-Secs are issued at higher interest rate, you will suffer loss either by holding it due to lower interest earning or suffer capital gain loss by selling it in secondary market as the price will crash following issue of instruments with higher coupon rate.

Hence, it is advisable to take advice of a financial advisor before you buy a long-term G-Sec, as an untimely investment may put you in loss. Otherwise, it will be better for you to enter the segment through debt mutual funds, where apart from diversification, your money will be invested in the G-Secs by a team of experts after due deliberations. Even FDs would be a better choice than an unsolicited investment in G-Secs, because you may suffer capital loss in secondary market despite the Sovereign guarantee.

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