What are pros and cons of Govt securities for cash component?

For F&O cash component
What are pros and cons of Govt securities ?

For example 9.20% G.S. 2030 @TradeB2B @Prayag @Rejeesh_Mathew @rupeshmandal @Vij @arunt @pankushri @sachinsp15

I might be wrong (please correct in this case);

Interest on government securities is taxable at the persons slab rate, so for someone who comes under 30% tax bracket, that’s a con.

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Hi @curiousvi

Before buying g sec -

  • if buying g sec from a fresh issue then %age quoted (in your example 9.20%) will be your yield to maturity
  • if buying g sec from secondary market, then do check out it’s present yield to maturity, high chance it may be lower than than quoted number of 9.20% (as per your example). [This can be a cons]

Pros -

  • No credit risk
  • Assured return if held till maturity

Cons -

  • Interest rate fluctuation will impact G sec bond price. Generally G sec bonds have large duration. Large duration bonds are more impacted by interest rate fluctuation. So, if you are thinking of selling the bond before the maturity then you may get lower price (if interest rate starts increasing going forward from now).
  • If interest rate rises, then bond price may not increase as per expectation or it may decrease also. Thus collateral value thus obtained may also decrease. Vice versa is also true, if interest rate further decreases then bond price will increase at a faster rate

Taxes -

Please refer to this link:


Overall conclusion - Gsec can be good bet for cash component if intended to held till maturity.

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Interest rate on govt securities is taxable at personal slab rate and capital appreciation is taxed at capital gains rate but if you invest through gilt funds than it is considered capital gain/loss because interest is not paid in to your bank account.

Not sure if that is a better route to invest in gsec ? Those funds expense ratio are not much.
@sachinsp15 @rupeshmandal

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@TradeB2B @rupeshmandal @cvs your thoughts here