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GovernmentSecuritiesInvestmentOpportunitiesforProvidentFunds
FAQs:InvestmentOpportunitiesforProvidentFunds

GovernmentSecuritiesMarket

WhyGsecs?

NBFCs
Others

Provident funds, by their very nature, need to invest in risk free securities that also provide them a reasonable return.
Government securities, also called the gilt edged securities or Gsecs, are not only free from default risk but also provide
reasonablereturnsand,therefore,offerthemostsuitableinvestmentopportunitytoprovidentfunds.

PaymentSystems

WhatareGsecs?
The Government securities comprise dated securities issued by the Government of India and state governments as also,
treasury bills issued by the Government of India.Reserve Bank of India manages and services these securities through its
publicdebtofficeslocatedinvariousplacesasanagentoftheGovernment.
TreasuryBills
Types
Treasury bills (Tbills) offer shortterm investment opportunities, generally up to one year. They are thus useful in managing
shorttermliquidity.Atpresent,theGovernmentofIndiaissuesthreetypesoftreasurybillsthroughauctions,namely, 91day,
182dayand364day.TherearenotreasurybillsissuedbyStateGovernments.
Amount
TreasurybillsareavailableforaminimumamountofRs.25,000andinmultiplesofRs.25,000.Treasurybillsareissuedata
discountandareredeemedatpar.TreasurybillsarealsoissuedundertheMarketStabilizationScheme(MSS).
Auctions
While 91day Tbills are auctioned every week on Wednesdays, 182day and 364day Tbills are auctioned every alternate
week on Wednesdays. The Reserve Bank of India issues a quarterly calendar of Tbill auctions which is available at the
Banks website. (URL:http://www.rbi.org.in). It also announces the exact dates of auction, the amount to be auctioned and
paymentdatesbyissuingpressreleasespriortoeveryauction.
Typeof

Dayof

Dayof

Tbills

Auction

Payment*

91day

Wednesday

FollowingFriday

182day

Wednesdayofnonreportingweek

FollowingFriday

364day

Wednesdayofreportingweek

FollowingFriday

*Ifthedayofpaymentfallsonaholiday,thepaymentismadeonthedayaftertheholiday.
Payment
Paymentbyallotteesattheauctionisrequiredtobemadebydebittotheir/custodianscurrentaccount.
Participation
ProvidentfundscanparticipateinallTbillauctionseitherascompetitivebiddersorasnoncompetitive bidders. Participation
asnoncompetitivebidderswouldmeanthatprovidentfundsneednotquotethepriceatwhichtheydesiretobuythesebills.
TheReserveBankallotsbidstothenoncompetitivebiddersattheweightedaveragepriceofthecompetitivebidsacceptedin
the auction. Allocations to noncompetitive bidders are in addition to the amount notified for sale. In other words, provident
fundsdonotfaceanyuncertaintyinpurchasingthedesiredamountofTbillsfromtheauctions.
Wheretopurchasefrom?
Tbills auctions are held on the Negotiated Dealing System (NDS) and the members electronically submit their bids on the
system.NoncompetitivebidsareroutedthroughtherespectivecustodiansoranybankorPDwhichisanNDSmember.
DatedSecurities
Government paper with tenor beyond one year is known as dated security. At present, there are Central Government dated
securitieswithatenorupto30yearsinthemarket.
Auction/Sale
Datedsecuritiesaresoldthroughauctions.Fixedcouponsecuritiesaresometimesalsosoldontapthatiskeptopenforafew
days.Oflate,theissuanceofCentral/stateGovernmentdatedsecuritiesarebeingdonethroughauctions.
Announcement
A half yearly calendar is issued in case of Central Government dated securities, indicating the amounts, the period within
which the auction will be held and the tenor of the security, which is made available on Reserve Banks website. The
Government of India and the Reserve Bank also issue a press release to announce the sale, a few days (normally a week)
before the auction. The press release is widely reported in the print media and wire agencies. The government of India also
issues an advertisement in the leading financial newspapers. The announcement of auctions/sales and their results are
publishedontheReserveBankwebsite(URL:http://www.rbi.org.in)
Amount
SubscriptionscanbeforaminimumamountofRs.10,000andinmultiplesofRs.10,000.
Wherearethesalesheld?
Auctions are conducted electronically on PDONDS system. The bids are submitted by the members on PDONDS system
bothontheirownbehalfaswellasonbehalfoftheirclientsProvidentfundscansubmittheirbidscompetitive/noncompetitive
totheirrespectivecustodianortoanybank/PDwhoisanNDSmember.
Payment
Thepaymentbysuccessfulbiddersismadeontheissuedate,asspecifiedintheauctionnotification,usuallytheworkingday
followingtheauctionday.

StateGovernmentSecurities
These are securities issued by the state governments and are also known as State Development Loans (SDLs). The issues
arealsomanagedandservicedbytheReserveBankofIndia.
The tenor of state government securities is normally ten years. State government securities are available for a minimum
amount of Rs.10,000 and in multiples of Rs.10,000. These are available at a fixed coupon rate. The auctions for State
GovernmentsecuritiesareheldelectronicallyonPDONDSmodule.
AvailabilityofGsecs
Apart from purchasing government securities in the primary issuance, i.e. through auctions/sales, all types of government
papercanalsobepurchasedfromthesecondarymarket.PrimaryDealersalsopurchaseandsellsecurities.ProvidentFunds
can bid under Noncompetitive bidding facility in primary auction of GSecs under which they can place a single bid of up to
Rs. two crore (face value) (minimum Rs. 10,000/) through their custodian (bank/PD). The allotment is made at the weighted
averagecutoffyield/priceofthecompetitivebidsacceptedintheauction.
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