1.2 A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

Government securities come with a promise of the full repayment of invested principal at maturity of the security. Some government securities may also pay periodic coupon or interest payments. These securities are considered conservative investments with low risk since they have the backing of the government that issued them.

Key Takeaways

• Government securities are government debt issuances used to fund daily operations, and special infrastructure and military projects.
• They guarantee the full repayment of invested principal at the maturity of the security and often pay periodic coupon or interest payments.
• Government securities are considered to be risk-free as they have the backing of the government that issued them.
• The tradeoff of buying risk-free securities is that they tend to pay a lower rate of interest than corporate bonds.
• Investors in government securities will either hold them to maturity or sell them to other investors on the secondary bond market.