The Reserve Bank of India welcomes retail investors with a customer-centric initiative under the “RBI Retail Direct Scheme” which opens the door for retail investors to get easy access to government securities.

Government securities are bond issuances by the government that are primarily used to fund operations or any other specific infrastructure projects

The RBI scheme will expand the scope of investment in the country which means investors will be exposed to more options to invest their wealth and simultaneously make access to capital markets i.e. (the long term market) easier and more secure.

Under the RBI Retail Direct Scheme, small investors in the country get a safe medium of investment in government securities.

So far the direct access for government securities has been provided only to selective banks and institutional investors like insurance companies and mutual funds.

The specific aim behind this scheme is to enhance access to the government securities market for retail investors. It offers them an avenue for directly investing in the securities issued by the Centre and the state government.

This is a major structural reform by the Reserve Bank of India. The scheme places India in a list of selected few countries offering such facilities.

The process to opt for this scheme:

1. Access to invest in the new scheme issued by the Reserve Bank of India will be processed after investors open and maintain their government securities account online with the RBI and it will be absolutely free of cost.

2. Therefore, investors need to open an RBI Direct GILT Account that gets linked to the savings bank account from the official website of RBI Retail Direct.

3. On linking, an OTP will be generated on a registered mobile number and savings account.

4. The online portal provides registered users access to a trading platform for government securities called Negotiated Dealing System-Order Matching Segment i.e. if the purchased bond needs to be traded in the secondary market then it can be done with the help of the mentioned platform NDS-OMS. The scheme opens access for investors to primary and secondary bond markets.

This is a zero-cost investment wherein no intermediaries are involved and no additional fees need to be paid as well as no charge or fee will be levied for bidding in the primary auction. The payment gateway charges will be borne by the registered investor.

Hence the entire bond market will turn online and make it easy for investors to track and trade online.

Payment can be done either through UPI or net banking for purchasing the bonds online.

It is similar to an IPO when it is announced and the bidding process is executed the same way once these government securities are announced then investors can invest in them under primarily issued bonds. The scheme, leveraging technological announcements, offers a portal avenue to invest in central government securities, treasury bills, state development loans, and Sovereign Gold Bonds. However, under the SGBs scheme, the government gives 2% extra interest and this makes the scheme more attractive to the investors.

How does it benefit the retail segment?

Assured -return- Government issued debt is an assured return provided to the investors and this is a good option for risk-averse investors especially under volatile market conditions/

Fixed interest payments- Investors are guaranteed fixed periodic interest payments on their investments in government securities which is an appealing attribute of any investment option.

Zero default risk- Government securities carry a zero default risk that assures investors that they have parked their money under a safe zone. Along with more secure investments, debt investments also provide many tax benefits for the investors as well as allow the investors to provide a helping hand to support practical projects.

Tax benefits- Tax incentives provided on government securities can lead to a huge success of retail purchases of sovereign debt securities.

For example, a 364-T bill or a lesser time horizon security offers less than 4 percent of returns as compared to a fixed deposit with 4.5-5 percent and hence a tax incentive factor narrows down the differential factor between these two making a sovereign debt more attractive to investors.

Liquidity- Easy buying and selling of government securities as well as tax incentives are the key factors to make this a success.

Costs written off- It will take out the intermediary costs associated while investing indirectly into these government-issued securities through non-banking financial institutions, brokers, etc.

Few procedures to follow for the auction of government securities in the primary market.

One bid per security is allowed

Payment to be done via UPI or net banking

Refund will be processed under the linked bank account

Allotted security to be credited in the investors GILT account on the settlement date

Registered investors can easily buy or sell government securities on the online portal for secondary market transactions

Reference used: https://www.rbi.org.in/commonman/english/scripts/FAQs.aspx?Id=3337&

Cover image reference: https://img.freepik.com/premium-photo/indian-new-currency-rupee-notes-with-wooden-gavel-showing-financial-law-india-with-tricolour-background_466689-57250.jpg