Government Security

Government Security - INVESTMENT BANKING AND FINANCIAL...

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Click to edit Master subtitle style INVESTMENT BANKING AND FINANCIAL SERVICES G-Sec Market 11
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Government Securities Market Primary and Secondary Market for G-Sec Nature and Organization of G-Sec Markets Developments in G-sec market Initiative of Govt and RBI to improve the G-sec markets 22
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Nature and Organisation Supply stems from issue of Govt. Marketable debt Issued by Central Govt., State Govts., Semi- Govt. authorities, autonomous institutions like SEBs, PSCs and other govt. agencies Central Govt. issues bonds, TBs, and special rupee securities in payment of India's subscriptions to IMF, ADB, Intl. Dev. Assn. (IDA) Special rupee securities are a part of internal floating debt of the govt. They are non-negotiable and non-interest bearing claims 33
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Nature and Organisation G-Sec are unique & vital financial instrument in the financial markets of any country Open market operations and SLR are closely connected with the dynamics of the market Holders can obtain loans against the collateral of theses securities from RBI and other institutions 44
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Nature and Organisation As the RBI can issue currency notes against the backing, apart from gold and foreign exchange, or central govt bonds, they constitute the ultimate source of liquidity in the economy It is a gilt-edged security Central govt. securities are the safest of all claims They are free of default risk or credit risk which leads to reduction in market risk Govt securities provide certainty of capital value not only at maturity but also prior to maturity, and as such, they are an ideal financial instrument for diversification of investment portfolio 55
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Nature and Organisation Issued in denominations of Rs. 100 or Rs. 1000 – Rs. 100 till mid 1980s and later Rate of interest is relatively lower Government in order to minimize the cost of servicing public debt deliberately maintains the interest at a low level Market for these securities has expanded because of the regulations, statutory or otherwise At the rates of interest that can be earned on these securities, any other borrower but for government would have been unable to raise funds 66
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Interest on g-secs is payable half-yearly Income in the form of interest or dividends on other approved securities is exempt from income tax subject to a certain limit The value of investments in these securities and other investments specified in the wealth tax act, 1957 is exempt from wealth tax up to a limit Individuals do not normally invest in these securities Savings in tax liability does not seem to be an important motivation behind investment in them In US interest on the securities or local authorities is exempt from tax unlike in India. 77
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Government Security - INVESTMENT BANKING AND FINANCIAL...

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