G-secs are a short form for government securities issued to finance their fiscal deficit by the government. The government collects taxes from its residents, which is the government's primary source of income. The nation, on the other hand, also spends on issues such as health care, schooling, defense and infrastructure. Such costs are funded by the taxes that we raise. But if the costs surpass the profits, a fiscal deficit will arise. In such a scenario, the government issues different types of debt securities to collect money from investors and use it to fund their expenses. Government-issued debt securities are called G-secs.
G-secs is a government debt obligation that promises to pay a fixed or floating interest rate to its holders (G-sec investors) at periodic intervals and the initial amount or principal invested at maturity.Because G-secs are issued by the government, they are considered safe in the case of default risk, i.e. the chances of the borrower or issuer (in this case the government) failing to pay their obligations are remote.
G-secs with a maturity of less than one year are known as T-bills or Treasury bills and those with a maturity of more than one year are known as government bonds.
Gilts are central government-issued securities that are said to bear sovereign or minimal risk.
A mutual fund that invests in the world's stocks or bonds.
Unit trusts or Mutual Funds invested mainly in capital growth rather than profits. Growth funds are inherently more volatile than moderate income or money market funds as investors invest in stocks or assets that are subject to higher price movements.
Mutual Funds provide investors with different options to choose from depending on their financial requirements. A Growth Option is targeted towards long-term capital growth. You choose not to opt for dividends in the case of the development option.
Therefore, you will not receive any intermediate payouts from the scheme if you invest in the growth option of a Mutual Fund scheme. All profits made by the fund are reinvested in the scheme in a growth option. It leads to an increase in the scheme's NAV, as the scheme keeps the income rather than being allocated to the shareholders. When the scheme makes a profit, it through the scheme's NAV and vice versa.
The only way an investor can make a return in a growth strategy is to sell their investment in the scheme. The return on a growth plan is calculated by taking the difference in NAV on the date of sale and date of purchase as there are no intermediate payments such as dividends, interest, earnings, bonuses, etc.
At the time of redemption, a growth option investor experiences a higher capital gain compared to an investor who chose the dividend option. Thus, for the same investment duration, the growth option investor will end up paying higher capital gains tax than the dividend option investor. The dividend option shareholder must, however, bear the burden of the Dividend Distribution Tax (DDT), which is the tax deducted by the fund house from the dividend to be paid.
Since a DDT is withheld every time a dividend is declared by the company, it decreases the amount of money available for future reinvestment in the case of a Dividend Reinvest option compared to an option for growth where capital gain tax is levied only at the time of withdrawal. The DDT also reduces the dividend earned by the shareholder who opted for the payout option for the dividend. A growth plan is ideal for those pursuing long-term growth of their assets and are not looking forward to the fund's intermediate payouts.
A plan to reinvest the income earned in the scheme. The primary objective is the appreciation of capital. A mutual fund whose primary investment objective is long-term growth of capital.