Top 8 Features of Government Securities
Features of Government Securities:
Issuing Authority
Government Securities and Stock Market
Government Securities and Commercial Banks
Issue Price
Government Securities and Rate of Interest
Tax Exemption
Government Securities and Financial Institutions
Government Securities and Underwriting
Feature # 1. Issuing Authority:
Government securities can be issued only by the Central Government, State Governments, Semi-government Authorities. The Central Government securities prevailing in India are Gold Bonds, National Defence Bends and Rural Development Bonds.
The Central Government also issues Treasury Bills, Special Rupee Securities, Payment of India’s Subscriptions to International Monetary Fund, I.B.R.D. and International Development Agency.
Government securities are also categorized by issues made by local Government Authorities, City Corporations, Municipalities, Port Trusts, Improvement Trusts, State Electricity Boards, Public Sector Undertaking and Metropolitan Authorities. These authorities usually issue bonds.
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Feature # 2. Government Securities and Stock Market:
The stock market is to a large extent influenced by the government securities in India. The Government securities are controlled by the Reserve Bank of India which maintains the statutory liquidity ratio and uses open market operations for control.
In India, government securities do not affect the interest rates to any great extent in the private corporate sectors and industrial securities. Government securities operate basically for creating funds for development and priority program of the five year plans as well as for meeting deficit budgets for Central and State plans.
Feature # 3. Government Securities and Commercial Banks:
In India, all commercial banks have to maintain their secondary resources through government securities. The government securities also help them to get accommodation from the Reserve Bank of India whenever the need arises. Government securities are also excellent means to obtain loans. These securities are kept as collateral.
Feature # 4. Issue Price:
Government securities are issued in denominations of Rs. 100. It has been noticed that these securities have usually been issued at a discount but not a premium.
Feature # 5. Government Securities and Rate of Interest:
Rate of interest on government securities is low. In fact, it is lower than any other form of investment. This is so because government securities are considered to be the safest because at the time of maturity government always meets its commitments and is never at default.
Feature # 6. Tax Exemption:
Government securities offer certain tax exemptions.
Feature # 7. Government Securities and Financial Institutions:
Financial Institutions have a legal constraint to invest certain proportion of their investible surplus every year in government securities. This amount is usually held by them till maturity because financial institutions find it difficult to switch from one security to another. Also, they are not in any particular need or requirements of funds. Due to these reasons, they usually take their funds only after the maturity of the security.
Feature # 8. Government Securities and Underwriting:
Government securities are not underwritten. In fact, brokers also do not like to deal with these securities. Government securities are issued by the Debt Office of the Reserve Bank of India. This office notifies all issues and subscriptions which can be open for two to three days.
The issues are subscribed during the year and are concentrated during the slack season. Usually, the Public Debt Office (PDO) tries to have a small portion of issues evenly spaced in the year according to the needs of the government budget. The government securities are usually sold in ‘over-the-counter market’ and each sale is separately negotiated.
Government securities, thus, have certain peculiar characteristics relating to mode of issue, price of issue and issuing authority. They also have a relationship with the commercial banks and securities market. Government securities offer tax exemptions also. Their operations are now discussed.
Alternative Forms, Features, Government Securities, Investment, Investment Management, Management
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