Characteristics Government Securities plays a significant role in the Indian Money Market. The characteristics of Government Securities are discussed below: 12th Commerce Unit - - . . AM .
Agencies Government securities are issued by agencies such as Central Government, State Governments, semi-government authorities like local Government authorities, e.g. municipalities, autonomous institution such as metropolitan authorities, port trusts etc., . RBI Special Role RBI takes a special and an active role in the purchase and sale of these securities as part of its monetary management exercise. .
Nature of Securities Securities offer a safe avenue of investment through guaranteed payment of interest and repayment of principal by the Government. . Liquidity Profile The liquidity profile of gilt-edged securities varies. Accordingly liquidity profile of securities issued by Central Government is high.
. Tax Rebate A striking feature of these securities is that they offer wide-range of tax incentives to investors. This has made these securities very popular for this benefit. .
Market As each sale and purchase has to be negotiated separately, the Gilt-Edged Market is an Over-The-Counter Market. The Government securities market in India has two segments namely primary market and secondary market. . Forms The securities of Central and State Government take such forms as inscribed stock or stock certificate, promissory note and bearer bond.
. Participants The participants in Government securities market include the Government sector comprising Central and State Governments whose holdings represent governmental transfer of resources. . Trading Although the secondary market for Government securities is narrow, small and less active, banks and corporate holders who purchase and sell Government securities on the stock exchanges participate in trading.
. Issue Mechanism The Public Debt Office (PDO) of the RBI undertakes to issue government securities. . Issue opening A notification for the issue of the securities is made a few days before the public subscription is open.
. Grooming Gradual Acquisition of securities nearing maturity through the stock exchanges by the RBI in order to facilitate redemption is described as ‘grooming’. . Switching The purchase of one security against the sale of another security carried out by the RBI in the secondary market as part of its open market operations is described as ‘Switching’.
. Auctioning A method of trading whereby merchants bid against one another and where the securities are sold to the highest bidder is known as ‘auctioning’.