Can I get a pension using GOI bonds instead of LIC pension?

Published: September 28, 2020 at 12:44 pm

Last Updated on October 1, 2023 at 9:16 pm

Pension is an extremely important part of a personal retirement portfolio. Recent developments in the bond market have made it possible for a retail investor to buy long-term Government of India (GOI) bonds (different from RBI floating rate bond). It is time to ask if a GOI bond can be used for a pension and how it is different from the annuity offered by insurers like LIC.

By “LIC pension” we refer to annuity products from any insurance company. Also if a person has a compulsory pension via the govt PF or via NPS (for all) or via a company pension plan (usually via insurer) then the GOI bond option can be considered to supplement the pension.

Before we consider the pros and cons of GOI bonds and standard pension products, how does one buy GOI bonds? We had earlier mentioned details of this procedure in an eloquently(!) titled article: Do not buy Government Securities (G-sec) from retail platforms (Zerodha, NSE goBID). The “do not buy” refers to buying GOI bonds (for example, treasury bills or T-bills) for short-terms. As mentioned in this article, GOI bonds can be used for pension depending on an individual’s circumstances. So there is no disparity here.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥

Some excerpts from this article: On 23rd Nov. 2017, RBI opened the G-sec market to retail investors by allowing them to participate in “non-competitive bidding” in government securities and T-bills. Subsequently, Zerodha coin launched its trading platform and NSE  has come up with an app and online platform NSE goBID for retail participation in G-sec with a minimum investment of Rs. 10, 000 and multiples thereof up to 2 crores.

Thus multiple of Rs. 10,000 is a reasonable sum for a “middle-class” retail investor looking for regular income from GOI bonds. When RBI announces G-secs, the price is determined in an auction by banks and institutional investors (big players). While retail investors can now participate in this auction, they cannot bid for these bonds. The price allotted will be decided by the bids of the big players. This is referred to as non-competitive bidding.

Pension from GOI bonds: pros and cons

If you buy a GOI bond, you would receive the annual interest in two instalments (every six months). This interest payment is what is being referred to as a “pension” substitute in this article. This bond income is as secure as it gets, higher than a “LIC pension”.

The bond interest payout is taxable as per slab – the same as a conventional pension. However, the interest rate could be higher as there are no middle-men involved. That said, when you buy via NSE goBID, you may have to pay a price higher than the face value. This will bring down the effective return.

An insurance annuity is age-dependent. Younger the person, lower the payout. Bond income is independent of age. An annuity is typical for life and if one needs the principal back, the rate will be even lower.

GOI bond is for a fixed tenure but the tenure can be 20 or 30 or even 40 years. Which is as good as a lifetime for those in the evening of their lives. Besides the principal will always be returned back. Annuities offer pension to surviving spouse, but this would mean loss of principal.

Annuities require “proof of life” aka “life certification” each year. This can be a serious hassle (and health risk under the present conditions) in spite of fingerprint-based tech support available. GOI bonds have no such requirement.

This is an example of a long-term bond from the NSE go BID portal. A 40-year old bond with a payout of 6.8% for the entire tenure. Another 7.16% bond maturing in 2050 is also shown in the screenshot below.

  • 680GS2060A – GS (6.80% GS 2060)
  • Bidding Dates 22-Sep-2020 to 23-Sep-2020
  • Price per Security 108.00
  • RBI Auction Date 25-Sep-2020
NSEGOBID GOI bonds screenshot showing two long-term bonds that could used as a pension
NSEGOBID GOI bonds screenshot

Naturally, there is a premium of Rs. 15 per 7.16% bond that needs to be paid. Compared to an age-dependent lower rate from an annuity product, considering the return of principal, and absence of annual paperwork, it is reasonably justified to consider these. An exact point to point comparison between the two products may not be possible.

The catch is, they may not be available all the time, that too at attractive rates and the payout is every six months.

Those interested may register with the press information bureau of India for notifications from the finance ministry for details on new bond auctions. See this example circular notifying one of the above-mentioned bonds. Note emails will take up to a day to arrive because of their large list. You can also check with the NSE goBid portal (after registering).

Who should consider buying long-term GOI bonds?

  • Anyone who has a significant retirement corpus but no conventional pension plan can consider this instead of an annuity. The assumption here is, they have enough liquidity from other savings and enough money invested to handle inflation in future.
  • Those who need monthy income and cannot take the risk of a one in six months payout are better off with conventional annuity products (this was remarked in my earlier article on the topic too)
  • Those who are looking to supplement their existing pension can also consider these.
  • Senior citizen comfortable with the use of Demat account may find these products more endearing than others who have never touched direct equity.

How to register at NSE goBID

You will need a demat account, PAN, verified KYC and acceptable bank account.

  1. Go to the NSE go BID portal
  2. Scroll to see two dull orange buttons at the page bottom. One is for those with demat accounts with existing NSE trading members and one is for resident individuals holding other demat accounts. All popular demat providers should be NSE members.
  3. Once you enter relevant details, it will be verified with your existing demat KYC and account approved for bidding.
  4. The payment for the bid must be done from the same bank account linked with your demat.

In summary long-term, GOI bonds can be an excellent, secure income source for those who want periodic income but can still manage without crucially depending on it. While not everyone can opt for it instead of a convention pension (if there is a choice in the matter), GOI bond income can certainly be used as a pension supplement.

Please note that the above reasoning does not apply to buying short-term GOI bonds or money market bonds (T-bills). A simple liquid fund, money market fund or arbitrage fund can get the job done just as well and with lower tax outgo. For recommendation see: Handpicked List of Mutual Funds Oct-Dec 2020 (PlumbLine)

Announcement: The new course, How to get people to pay for your skills is now open! The course content is available in an exclusive Facebook Group where the course videos are hosted. The early-bird discount price (one-time) is Rs. 2000 – this is 60% off the full price of Rs. 5000. Sign up via: How to get people to pay for your skills: A guide to win trust and build income

Do share this article with your friends using the buttons below.

🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Follow Freefincal on Google News
Follow Freefincal on Google News
Subscribe to the freefincal Youtube Channel. Subscribe button courtesy: Vecteezy.
Subscribe to the freefincal Youtube Channel.
Follow freefincal on WhatsApp Channel
Follow freefincal on WhatsApp
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! 
Listen to the Lets Get Rich with Pattu Podcast
Listen to the Let's Get Rich with Pattu Podcast
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
Lets Get RICH With PATTU podcast on YouTube
Let's Get RICH With PATTU podcast on YouTube.
🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
  • Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
  • Have a question? Subscribe to our newsletter using the form below.
  • Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.

Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!

About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free!  One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course!  Increase your income by getting people to pay for your skills! More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!   
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Both boy and girl version covers of Chinchu gets a superpower
Both the boy and girl-version covers of "Chinchu Gets a superpower".
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Feedback from a young reader after reading Chinchu gets a Superpower (small version)
Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)