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How and in what form can G-Secs be held?

Government securities can be held by investors either as physical stock or in dematerialized (demat / electronic) form.

What is Government Security (G-Sec)?

Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. 

G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

Who is central depository for G-Secs?

The Public Debt Office (PDO) of Reserve Bank of India (RBI) acts as the registry / depository of G-Secs and deals with the issue, interest payment and repayment of principal at maturity. 

How and in what form can G-Secs be held?

G-Sec may be held by investors in the following forms –

  • Physical form
  • Demat form  

From May 20, 2002, it is mandatory for all the RBI regulated entities to hold and transact in G-Secs only in dematerialized form. 

How can G-Sec be held in physical form?

  • G-Secs may be held in the form of stock certificates. 
  • A stock certificate is registered in the books of PDO. 
  • Ownership in stock certificates cannot be transferred by way of endorsement and delivery. They are transferred by executing a transfer form as the ownership and transfer details are recorded in the books of PDO. 
  • The transfer of a stock certificate is final and valid only when the same is registered in the books of PDO.

How can G-Sec be held in demat form?

The holders can maintain their securities in dematerialsed form in either of the two ways –

  • Subsidiary General Ledger (SGL) Account – RBI offers SGL account facility to select entities who can hold their securities in SGL accounts maintained with PDO of RBI. Only financially strong entities viz. Banks, PDs, select UCBs and NBFCs which meet RBI guidelines are allowed to maintain SGL account with RBI.
  • Gilt Account – An investor has the option of opening a Gilt Account with a bank / PD which is eligible to open a Constituent Subsidiary General Ledger (CSGL) account with RBI. The bank / PD, as a custodian of Gilt Account holders, would maintain the holdings of its constituents in CSGL account (which is also known as SGL II account) with RBI. 

Holding G-Secs in the electronic or scripless form is the safest and the most convenient alternative as it eliminates the problems relating to their custody, viz., loss of security. Besides, transfers and servicing of securities in electronic form is hassle free. 

What are other options for holding securities?

Investors also have the option of holding G-Secs in a dematerialized account with depositories like National Securities Depository Limited (NSDL), Central Depository Services Limited (CDSL), etc. This facilitates trading of G-Secs on the stock exchanges.


References

Reserve Bank of India. (2020, April 01). 'Government Securities Market in India – A Primer'. Retrieved from https://www.rbi.org.in/Scripts/FAQView.aspx?Id=79


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