Why are Government Securities (G-Secs) not as popular as fixed deposits? 

Indians have always had an overwhelming preference for bank fixed deposits (FDs) as a safe investment, especially over government securities (G-Secs). It’s interesting to note that both of these are backed by high safety, but FDs still manage to end up in way more Indian household balance sheets than G-Secs. 

Over 45% of the financial assets of Indian households are held in bank deposits as per the RBI Bulletin December 2024 (Stocks of Financial Assets and Liabilities of Households). On the other hand, currencies and mutual funds together account for less than 20%. 

Government Securities are debt instruments issued by the central government to borrow money from the public to meet its fiscal requirements. Currently, India has a bond market of over ₹100 trillion, but retail participation in this segment is less than 1% of direct participation. 

As of August 18, 2025, there were 4,94,728 registrations on the RBI’s Retail Direct Platform, with total accounts opened at 2,95,228. The value of total holdings stood at ₹2,441.23 crore. What makes G-Secs less popular than FDs?

Simplicity

FDs have been the default, safe investment in India for generations. They’re easy to understand and do not require any deep knowledge. Further, with India’s vast bank network, FDs can be opened instantly at any bank branch. 

G-Secs, on the other hand, require individuals to go to RBI Retail Direct or other broker platforms, and also require a certain level of understanding of maturities and yields. This process can seem intimidating to many. 

In fact, investors typically have to participate through a non-competitive bidding process, which can feel complex for first-time buyers. 

It is worth noting that until recently, G-Secs were not always easily accessible to retail investors; institutional players like banks, insurance companies and mutual funds were the dominant participants in these securities. The launch of Retail Direct in 2021 was the first real initiative to open this market to individuals. However, the learning curve has been steep, and the process complexity is still a barrier for widespread retail adoption.  

Awareness is also a big concern among Indians, as the majority of people know about FDs but aren’t aware of debt instruments like G-Secs or treasury bills. 

Perceived safety

Fixed deposits carry an insurance protection of up to ₹5 lakh under the Deposit Insurance and Credit Guarantee Corporation (DICGC), which makes them one of the most secure investment options available in the country.   

However, G-Secs carry the same level of safety, or even better, as they have the guarantee of the Government of India. Most investors aren’t aware of this, or don’t understand this, and prefer the reassurance of bank insurance. 

Liquidity

Individuals can withdraw money from FDs before maturity by paying a penalty. Moreover, FDs can also be used as collateral for loans; most banks offer up to 80% of the FD value as a loan. 

While G-Secs can also be traded, liquidity remains poor in the secondary market for small-ticket investors. The process of selling before maturity is also more complex than breaking FDs. 

Taxation and returns

Top Indian banks offer interest rates ranging between 6.5% to 7.25% on deposits with a tenure of 1 to 3 years. Small finance banks often offer higher rates, up to 8% on average. Interest income from FDs is fully taxed as per the investor’s income slab. However, with inflation at around 5% per year, the real returns are less attractive. 

G-Secs offer a return ranging between 6.8% and 7.3% for securities with a tenure of 1 year to 10 years. The returns on G-Secs are taxed at slab rates, similar to FDs. Appreciation in treasury bills is considered as short-term capital gains, and is taxed as per the applicable slab rate. Interest income on bonds and State Development Loans (SDLs) is also taxed as per the slab rate, but the long-term capital gains on these are taxed at 12.5% (like equity). 

Zero-coupon bonds, which are issued at a discount and mature at their face value (and the difference is the investor’s return), are taxed based on whether they are listed or not. For notified/listed ZCBs, gains are taxed as capital gains at maturity (STCG at slab rate and LTCG at 12.5%), while for non-notified ZCBs, gains are taxed as per the investor’s applicable slab rate.

While there is a shift in trend, as the household share of term deposits has fallen to 46% in 2025 from nearly 51% in 2020, as per RBI data, G-Secs still attract minimal retail investment. The shift in trend from deposits is mainly due to increased investment in equities. However, G-Secs may slowly gain traction, with fintech applications offering SIP-like investing in these debt instruments.