Guys, this is really great news. For all you investors looking for a safe way to invest, it doesn’t get any better than G-Secs.
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no premature withdrawl .
only option is to sell in exchange.
dont expect to find any buyer while selling.
also you can also incurr capital loss while selling
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There is. You can contact Zerodha.
The product presentation says that the exchanges are planning to list G-Secs soon.
Answer 1
Huh? There is always a risk involved in investing. If you don’t want a loss then I hear savings bank accounts offer an attractive interest rate of 3.5% per annum.
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Read rbi rules. Only way to sell is in exchange. When you sell you most like incur capital loss .
About capital loss I mean is that eg you buy the bonds at RS 100. When yield rise value of bonds will decrease to match the yield.
So there is capital loss.
Eg see the 1 yr return of Gilt mf vs 5 yr return. Though Gilt mf has gsec i.e fixed return but value of bonds decreased as yeild hardened.
There’s no premature withdrawal. Just like rbi 7.75 bond.
If there is withdrawal just provide the link of that document.
Icici direct and hdfc sec also has this facility. I know what I am talking.
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There can be a profit also, assuming the interest cycle is your favour. Of course, there is a market risk like it is with any market linked instrument. if you don’t want the risk, then you shouldn’t be in the markets. But for an investor who wishes to hold it till the maturity, this doesn’t matter. Which is what Zerodha is pitching the product as.
G-Secs don’t have lockins! Even currently, you can approach IDBI Samriddhi and sell your bond.
Read the blogpost.
Didn’t say you don’t
Don’t mix with idbi samriddhi. It’s a completely different platform.
The bonds are bought from govt. You are directly giving your money to govt.
It’s funny you say there premature withdrawal.
I insist you show me the document rules about withdrawal
You are talking about Blogspot. I read it. No withdrawal mentioned
Good to know such an useful information !
Main negative I feel is that i am not able to defer my taxes and take advantage of indexation on the interest income. I am currently using debt funds and save a huge amount of tax due to indexation. With bonds, you will get interest paid semi annually on which you will be forced to pay taxes.
I know that debt funds come with their own set of risks. But I am able to manage those.
Can this (GSEC) be used as margin for futures or short options?
Not currently, but we are working on this.
@RahulKhanna
Instead of Govt Securities,
keeping your money in Digibank savings a/c will give you upto 7% interest p.a. or Kotak 811 a/c which will give you upto 6% interest rate.
Advantage:
Upto Rs 10,000 bank interest in a year is exempted from taxation. So interest amount upto Rs 10,000
You can withdraw anytime. Full liquidity.
If you are a senior citizen, keeping your money in FD which would give you about 7.25% interest p.a.
Advantage:
From next year onwards upto Rs 50,000 FD interest is exempted under section 80TTB. So the interest upto Rs 50,000 becomes tax-free.
Point is not whether FD or gsecs are better.(Though I will list the advantage of gsecs in this post too).
Till now there is no easy platform for buying or selling of gsecs or to participate in noncompetitive bidding available to retail investor though rbi has allowed it since last year. So in that respect I appreciate the initiative taken by zerodha.
Regarding FD and gsecs, FDs are illiquid but gsecs are not. You can sell gsecs in NDS OM market maintained by clearing corporation of india ltd. So there is chance of exit without paying 1% penality as in GSECs but not in FD. Also FDs income is not tax exempt for person under 60 years of age under 80TTA or 80TTB.
With regard to tax efficient investment, RS. 10000 exemption under 80TTA is not applicable to time deposits like FD or RD, only saving account interest is exempted which gives interest at less than 4% interest rates.
Under 80TTB, which is only available to senior citizens not to everyone, interest income of Rs50000 is tax exempt with 7.25% interest per annum and locked in for 5 years. You have to pay penalty of 1% if you need money earlier than maturity.
Now count whether for 10000 rs tax exemption under 80TTA with 4% interest per annum or under 80TTB, interest income of Rs50000 with 7.25% interest per annum and locked in for 5 years is worth for you.
So essentially gsecs are altogether a different financial product which you should not compare with time deposits.
Now question is whether zerodha platform is ready.I think there is score for large improvement. So far Zerodha has extended only non competitive bidding and are completely silent on letting retail investor use/access to NDS platform. Their line of thought/what they are communicating to clients is that it will be listed in NSE but there is already a market for gsecs exist (NDS OM maintained by CCIL) where being a primary member, they can buy/sell gsecs on clients behalf. So here I think thay have to clarify soon.
Zerodha as primary holder has access to NDS OM platform.So according to RBI circular, retail investor has to buy/sell bonds in NDS OM platform through them. For this I think they have to work on their platform to integrate this feature and bring liquidity to gsecs.
Platform will give option to retail investor, at what price they want to sell that gsec in nds om platform, whether client holds the gsec or not, option to buy gescs from nds om platform.So essentially they have to link NDS OM platform to their zerodha platform in real time like they have done it for stocks listed in exchanges.
I think zerodha will remove this grey area asap and incorporate this feature in their website/platform to let its retail investor get full benefit from gsec and solve liquidity problem.
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Hi Bhuvanesh, any update on this??
VERY GOOD EXPLAINATION mr. tapan
i dont know why people are making fuss ??? those who want to invest in bond who is stopping them ??? every investment has pro and cons. . zerodha is trying to give maximum investment options. then why people are shouting now?? zerodha never advised anybody about any investment. they always use to say …they are just brokers not advisers. then why fuss and fizz is going on ??? those who think FD is better option nobody is stopping you to invest. . . atleast admire zerodha. these people are giving multiple options to invest under one roof as possible as they can. thank you zerodha AND thank you tapan for detailing…
Someone said it’s a safe investment. So I opposed. No one is against zerodha. Gsec are being promoted as alternative to fd. That is where my problem starts.
Non competitive bidding started in 2000s not last year. It was only through banks and now only exchange s are allowing.
@Nabarun_Chakraborty I am curious to know why you think gsec are not safe?
or
Did you mean something else?
theres risk in gsec as well as stocks.
for gsec compare short term returns with long term returns of gilt mutual funds.
rates of yeild will vary so cant be compared with FIXED DEPOSIT. you may get fixed interest but at maturity principal amount may be less than that you have actually paid if you are investing for the short term.