Understanding GSecs
What are GSecs, what value do they add to your portfolio, how do you buy them, and more importantly when!
Will try to cover basics in this post with a deep-dive covered in our session on Sunday.
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Before we begin Here are the details of the Live GSec bootcamp this Sunday
+Basics: Coupon, tenure, YTM
+Primary & secondary purchases
+Tax implications on interest/gains
+Interest rate cycle & strategies
Have kept it at ₹499 so that everyone can join!
https://easebuzz.in/link/QE4AX
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So what is a GSec: A Gsec (government security) is a bond issued by the Government of India. They are virtually risk-free backed by the government of India (Sovereign guarantee).
More importantly - unlike other fixed income instruments which have a max 5yr tenure, GSecs can have tenures of as long as 40 years!
The combination of the two takes away or atleast minimizes two major risks - (1) default risk - You're certain your principal is safe and the interest will keep coming (2) reinvestment risk - You can book a regular annuity income for a period as long as 40 years
(Before we proceed, some basic nomenclature A GSec will be displayed in this format 699GS2052 - 6.99% is the annual coupon. Because payments are made twice a year, you'll get 3.49% semi-annually.
2052 is when the GSec matures - meaning if you buy the security today, you'll get a semi-annual interest for the next 29 years with the face value (100) being returned after the period.)
Because these securities trade in the market (with extremely thin liquidity, but still trade) - you can buy these securities from the secondary market. Select securities are also available to purchase from the primary market in weekly auctions.
The interest you get semi-annually is taxed at your slab rate. However unlike your dividend and other income, TDS isn't deducted here. Short term gains are taxed at slab rates as well.
So we know what they are, we know how to buy them, and we know how they are taxed. Which brings us to the most critical part - when to buy them and what strategies can you build based on the interest rate cycle!
We will be discussing the nuance around navigating purchases & exit implementation, how bonds move with the interest rate cycle, and how you can manage your portfolio duration depending on where we are in the cycle in our bootcamp this Sunday!
Come Join: https://easebuzz.in/link/QE4AX
Disc: This is a purely educational post and is NOT intended as investment advice. Please consult your RIA or perform your own diligence for any investment decision.