Inflation beating returns! Why it’s the right time to invest in government securities

Conservative investors seeking regular income now have the opportunity to benefit from long-tenure bonds. These bonds, which range from a decade to as long as half a century, are gaining acceptance among Indian investors due to their accessibility and high safety. The Reserve Bank of India’s Retail Direct platform allows retail investors to access government securities (GSecs) with negligible credit risk.
Long-term bonds may not be the most exciting investment vehicles, but they currently provide stable returns. This is particularly appealing at the height of a cycle marked by rising interest rates, where guaranteed returns adjusted for inflation remain positive.
Jitendra Solanki, a Sebi-registered investment advisor, highlights the appeal of these bonds, particularly for individuals close to retirement or those looking to secure a regular income for their specially-abled child.
“Interest rates are close to a peak giving investors an opportunity to lock into high-tenure bonds. Conservative investors who want high safety with no risk to capital can buy these bonds and could stagger their purchases over the next six months,” says Vikram Dalal, founder of Synergee Capital.

Investors can choose from 10-, 20-, 30-, 40-, and 50-year bonds, with interest rates ranging from 7.32% to 7.55%. These rates are considered attractive as they beat inflation. Additionally, these bonds do not have a put or call option and offer tax-free annual interest.
To maximize cash flows and minimize reinvestment risk, financial planners suggest building a ladder by purchasing bonds of different maturities. However, it is important to note that while it is easy to buy government securities through auctions on the RBI Retail Direct platform, selling them in the secondary market may present challenges, particularly for smaller quantities.
Financial planners emphasize that certain bonds may lack liquidity when dealing with smaller quantities. They advise investors not to depend on quick liquidity for these products or purchase them with the intention of trading.
Institutional investors such as the Employees’ Provident Fund Organisation (EPFO), insurance companies, pension funds, and charitable trusts have traditionally invested in long-term government bonds to fulfill long-term commitments. These bonds are not typically traded in the secondary market.