NIFTY G-Sec Indices

Equity indices are everywhere; bond indices are harder to build. The workbook explains why: the bond universe is larger, one issuer can have many series with different ratings, and the universe changes constantly as new bonds are issued and old ones mature.

For Indian sovereign bonds, the NSE family answer is the NIFTY G-Sec Indices. They represent Government of India bonds across 6 distinct duration buckets, so an investor or fund can benchmark against government debt of the same interest-rate sensitivity as their own holdings.

The buckets are the key idea. Two government bonds carry no credit risk, but a bond with a Macaulay duration of eight years moves far more with interest rates than one with four months. Lumping them into one index would hide that.

The six buckets (Table 8.3):

Methodology:

1. Up to 3 liquid bonds in each duration bucket, chosen by turnover during the previous month, are eligible.
2. The bond's outstanding amount must exceed Rs 5,000 crore.
3. Each bond is weighted by its amount outstanding.
4. The index is rebalanced and reconstituted monthly.

Neighbours in section 8.6. NIFTY T-Bills Indices track treasury bills of 30, 60, 91 and 182 days and 1 year, plus an all-maturity index. Corporate bond indices (NIFTY AAA, AA+, AA, AA−, Banking & PSU) combine 6 duration buckets with rating segments. A total return bond index adds accrued interest and cash flows to price movements.

The bonds and figures are illustrative; the rules are the workbook's.

Five Government of India bonds fall in the 4–7 year Macaulay duration bucket this month. Ranked by last month's turnover:

The NIFTY G-Sec Medium to Long Duration index holds GS-A, GS-B and GS-D. Weights by amount outstanding:

Total = 90,000 + 60,000 + 30,000 = 1,80,000
GS-A = 90,000 ÷ 1,80,000 = 50.0%
GS-B = 60,000 ÷ 1,80,000 = 33.3%
GS-D = 30,000 ÷ 1,80,000 = 16.7%

A Category II debt AIF holding Rs 150 crore of government paper — with a Macaulay duration of about 5 years — would benchmark against this bucket, not the Long Duration index. Next month, if GS-E trades more than GS-D, the monthly reconstitution can swap them.

Chapter 8, section 8.6.1 (Government Securities Index), gives Table 8.3 and the four methodology rules; section 8.6 explains why bond indices are harder to build. Expect a question on the number of buckets, the Rs 5,000 crore and three-bond limits, the weighting basis, and the monthly rebalancing — and a matching question pairing a duration range with its bucket name.

• 6 duration buckets, defined by Macaulay duration, not residual maturity.
• Up to 3 bonds per bucket, selected on previous-month turnover.
• Outstanding amount more than Rs 5,000 crore.
• Weights are by amount outstanding, not equal and not by turnover — turnover decides entry, outstanding decides weight.
• G-Sec indices are rebalanced monthly. The T-Bill indices are different: the workbook says they are reconstituted weekly, and also that the all-maturity index is rebalanced on every T-bill auction.
• Medium Duration is 3–4 years; Medium to Long is 4–7 years. The ranges are uneven — do not assume equal widths.