Types of Government Bonds
The Government Securities are of the following types.
- Dated Securities
- Zero Coupon Bonds
- Floating rate Bonds
- Call / Put Option Bonds
- Dated Securities: Dated Securities have fixed maturity and are identified with the date of maturity. They have either fixed rate of interest or coupon rates which are semiannually payable.
For example: 6.85% GOI 2021 means
- It will mature in 2021
- The coupon or interest rate is 6.85% paid annually (at 6 months intervals usually)
- Zero Coupon Bonds: Zero Coupon Bonds are the securities which are issued at Face Value and redeemed at Par Value.
- They are not issued now. Zero coupon bonds were issued in 1990s only.
- Floating Rate Bonds: These refer to the changing interest rate bonds. The interest rate or coupon rate is higher than a Benchmark rate and usually linked to that benchmark rate. When the benchmark rate increases, the coupon rate also increases.
- Bonds with Call / Put Option: The Call/ Put Option bonds were issued in 2002 for the first time. The call and put option means that the bond holder can sell it back to the government and Government could buy it from the bond holder, after a prefixed period.