ALTERNATIVE FORMS OF INVESTMENT

BYK.VIDHYA

INTRODUCTION It is a larger market than the IndustrialSecurities.Government securities market is otherwisecalled as Gilt-edged securities market. It’s Long term securities are traded in Capitalmarket & short term securities in Money market.Securities issued by Central, State, Semi-government authorities.

TYPES OF GOVERNMENT SECURITIES

• PROMISSORY NOTES• STOCK CERTIFICATES

PROMISSORY NOTESRegistered promises of the government.Usually entered in a register specially made for it.Purchased by the banks and highly liquid in nature.Freely transferable.Half yearly interest provided when the promissory

note is presented before the office of purchaseMost popular government security among the

investors .

STOCK CERTIFICATES

• Cannot be transferred• Investors keep till its maturity.• LIFE INSURANCE CORPORATION and

PROVIDENT FUNDS are the major purchasers.• Helps the national economic policies, for

development of the country and the invested money can be utilized for pre planned works.

CHARACTERISTICS OF GOVERNMENT SECURITIES

ISSUING AUTHORITYGOVT.SECURITIES AND STOCK MARKETGOVT.SECURITIES AND COMMERCIAL BANKS ISSUE PRICEGOVT.SECURITIES AND RATE OF INTERESTTAX EXEMPTIONGOVT.SECURITIES AND FINANCIAL INSTITUTIONSGOVT.SECURITIES AND UNDERWRITING

(A) ISSUING AUTHORITY

Government securities can be issued only by the Central, state and semi- government authorities.

Gold Bonds, National Defence Bonds and Rural Development Bonds.

Issues treasury bills, special rupee securities, payment of India’s Subscriptions to International Monetary Fund, I.B.R.D. And International Development Agency.

(B)GOVT.SECURITIES AND STOCK MARKET

• Controlled by RBI, which maintain SLR.• Interest rate do not affect private sector &

industrial securities.• Operates for creating funds for development

& to meet deficit budgets of the government.

(C)GOVT.SECURITIES AND COMMERCIAL BANKS

• Commercial banks have to maintain their secondary resources through govt.securities.

• It helps to get accommodation from RBI, whenever the need arises.

• Easy to obtain loans• Kept as collateral security.

(D) ISSUE PRICE• Issued in denominations of ₹ 100.• Usually issued at a discount but not at a

premium.

(E) TAX EXEMPTION• Offer tax exemptions to Employees, high

income holders

(F) GOVT.SECURITIES AND RATE OF INTEREST

• Rate of interest is LOW.• Lower than any other form of investment.• Govt. Securities are the safest in terms of

maturity, risk is low.• Paid on maturity date without any default.

(G) GOVT.SECURITIES AND FINANCIAL INSTITUTIONS

• Legal constraint to invest certain proportion of their surplus every year.

• Hold the security till its maturity. (H) GOVT.SECURITIES AND

UNDERWRITING• Issued by the DEBT OFFICE OF THE RBI.• Brokers do not deal with these securities.• Sold through OVER THE COUNTER MARKET and each

sale is separately negotiated.

OPERATIONS OF GOVT. SECURITIES MARKET

• Government securities in India is narrow and inactive.• General investors do not buy these type of securities.• RBI and FINANCIAL INSTITUTIONS are the main investors.• Govt. Securities market supports capital market • It is employed by RBI and RBI has used open market

operations to provide finance for government.• RBI tries to maintain funds for achieving stability in

future.

PRICES AND YIELDS ON GOVERNMENT SECURITIES

• Prices remains stable, although bank rate has been increasing.

• The RBI has tried to stabilize the prices of government securities.

• The RBI make changes in purchasing and selling rates of different loans which are placed on its list.

• The RBI has also tried to manipulate the selling rate of treasury bills of government.

CONT.....• RBI has many times mopped up the surplus

funds by lowering the rate of sale of treasury bills.

• The yield on securities can be analysed only when an investor hold it continuously.

• Government securities have continuously increasing their interest rate.

• These rate are as far below than Industrial securities.

CONCLUSION

• In India govt. Securities are useful only for monetary management and fiscal policy. Though RBI has played an important role in purchasing, selling, borrowing and lending of government securities by executing the interest rates, an individual investor is not willing to invest in it.

although these securities comprises larger segment than the industrial market, only little knowledge is presently available to the common man. Therefore, it is not an attractive form of investment .

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