RBI’s retail direct gilt scheme: How to invest and what’s in it for you? – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/bonds/rbis-direct-retail-gilt-scheme-how-to-invest-and-whats-in-it-for-you/articleshow/87666162.cmsSynopsis

The scheme is aimed at facilitating investment by retail investors in gilts by improving ease of access and providing a direct portal for individual investors.

NEW DELHI: In February, the Reserve Bank of India (RBI) notified a scheme for retail investment in government securities, a plan which was today officially unveiled by Prime Minister Narendra Modi and central bank chief Shaktikanta Das.

The scheme, called RBI Retail Direct, is aimed at facilitating investment by retail investors in gilts by improving ease of access and providing a direct portal for individual investors.

ETMarkets.com delves into how retail investors can access the scheme and the potential pros and cons of parking money in government securities.

HOW TO INVEST?

According to a notification on the RBI’s website,

  1. Retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI.
  2. The RDG Account can be opened through an ‘Online portal’ provided for the purpose of the scheme.
  3. The ‘Online portal’ will also give the registered users the following facilities: Access to primary issuance of Government securities, access to NDS-OM (the RBI’s Negotiated Dealing System Order Matching trade platform)

Registration on the online portal will require the filling of an online form and a one-time password which shall be received on the registered mobile number. The portal shall intimate further details through email/short-messaging service.

“G-secs witness the highest volumes within the fixed income market since they offer a risk-free rate, hence, no credit risk. Retail investors could thus far participate in G-secs only through Debt Mutual Funds, although with limited options. Further, in debt funds, investors have to invest with a minimum 3-year investment horizon through the Growth option to qualify for long-term capital gains @20 per cent with indexation benefit. The RBI Retail Direct Scheme will now enable retail investors to participate in G-secs across various tenors with flexible investment horizons and the ability to get regular cash flows through risk-free coupons,” said Nitin Shanbhag, Senior Executive — Group VP, Motilal Oswal Private Wealth wrote.

After successful registration, investors can either purchase the government bonds through primary debt sales or in the secondary market. The government holds primary auctions every Friday, with the sales being conducted by the government’s debt manager, the RBI.

“As part of continuing efforts to increase retail participation in government securities and to improve ease of access, it has been decided to move beyond aggregator model and provide retail investors online access to the government securities market – both primary and secondary – along with the facility to open their gilt securities account (‘Retail Direct’) with the RBI. Details of the facility will be issued separately,” the RBI had said in its Statement on Development and Regulatory Policies accompanied with the monetary policy statement in February.

The payments to aggregators can be made via net banking facilities or UPI from the registered bank account. The sum shall be debited at the moment of submission of bids while only one bid per security is allowed.

According to the latest RBI data, there are 97 outstanding government securities with tenures ranging from 3 months to 40 years worth a total amount of Rs 78.5 lakh crore.

However, it is worth asking why investors should invest in government bonds, especially when other opportunities for parking funds offer better returns.

For institutional investors, the minimum lot size in the bond market is Rs 5 crore while the same for retail investors who up till now had the option of buying sovereign debt through the ‘non-competitive’ portion of primary auctions is Rs 10,000.

Given the ultra-loose monetary policy adopted since the outbreak of COVID, yields on government securities have been depressed, with the 10-year benchmark government bond yielding close to 6 per cent for most of the last year.

The benchmark bond was last at 6.36 per cent. The country’s largest bank State Bank of India (SBI) is currently offering an interest rate of 5.40 per cent for deposits of less than Rs 2 crore for a term of 5 to 10 years.

Market experts, however, believe that unless the retail gilt investment plan is accompanied by tax benefits such as those offered through mutual funds and small savings schemes, meaningful fund flows may not occur.

The larger picture when it comes to the timing of the retail gilt investment plan is that the government’s borrowing programme has been ballooning for the last few years while the pool of investors remains static.

In the current financial year, the central government is slated to borrow a massive Rs 12.06 lakh crore through the issuance of government bonds.

Rate This Story

Very BadBadAverageGoodVery Good(What’s moving Sensex and Nifty Track latest market newsstock tips and expert advice on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds.)

Download The Economic Times News App to get Daily Market Updates & Live Business News.

8 Comments on this Story

Nemani Hanumanta Rao 6 hours agoThe Modi government is falling in debt trap slowly. GOI is borrowing lakhs of crores in a irresponsible and reckless way which ultimately fall on the common man.
Tapan Kumar 9 hours agoTania now want to sell bonds directly? Hope economy is safe and our bureaucrat heading RBI Knows real nations economy
Shankar Chatterjee 9 hours agoThe Reserve Bank announces the initiation of the Reserve Bank of India (RBI) Retail Direct Scheme with effect from 12 November 2021. In this case, retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI which can be opened through an ‘Online portal’ provided for the purpose of the scheme…. Another important point is the ‘Online portal’ will also give the registered users the following facilities: Access to primary issuance of Government securities, access to NDS-OM (the RBI’s Negotiated Dealing System Order Matching trade platform). Further as per the Press Release of RBI, Investments can be made through: 1) Primary issuance of government securities: Investors can place bid as per the non-competitive scheme for participation in primary auction of government securities and procedural guidelines for SGB issuance and 2) Secondary market: Investors can buy and sell government securities on NDS-OM (‘Odd Lot’ and ‘Request for Quotes’ segments). It is also observed from the Press Release that payments for transactions can be done conveniently using saving bank account through internet-banking or Unified Payments Interface (UPI). Anyway, the impact of the scheme can be assessed after some years by doing concurrent evaluation study. But, I request RBI officials that fraud should not take place here as individual persons/retailers are involved. Full proof system should be implemented and fraudsters should be severely punished.Read More

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s