In a strategic move, participation of individuals in the government securities (G-Sec) market is now formally opened up with the launch of ‘(RBI) Retail Direct’, as a one-stop solution to facilitate investment in G-Secs by individual investors. It paves way for small investors to explore safe medium of investment accessing wider range of securities market for earning stable better risk-adjusted returns. With this move, India joins the select few countries that have given retail investors access to its trading platform, which is currently accessible to institutions such as banks, insurance companies, foreign investors and pension funds.

In a volatile market environment, the sovereign guarantee provides assurance of safety to small investors – senior citizens, middle-class employees, small businessmen, and even to housewives who have assured returns with ready liquidity through secondary market operations.

Beginning in July 2021, RBI unveiled the scheme allowing domestic retail investors to directly participate in G-Secs market that has now been formally launched. Intending investors can open and maintain a ‘Retail Direct Gilt Account’ with the RBI through an online portal. It will also provide access to primary issuance of G-Secs with secondary market opportunities. Its scope will broadly include investing in (i) Government of India Treasury Bills (ii) Government of India dated securities (iii) Sovereign Gold Bonds (SGB) and State Development Loans (SDLs). 

The interested individual investor can log into ‘RBI Retail Direct online portal (htpps://rbiretail-direct.org.in) and register based on an OTP generated on the registered mobile and email id. Know your customer (KYC) guidelines and authentication of credentials will be followed before onboarding the investors.  Retail Direct Gilt (RDG) Account will be opened after the successful registration process is completed. 

The RDG Account shall be available for primary market participation. The RDG provides access to Negotiated Dealing System (NDS)- Order Matching (OM) electronic platform for investment through electronic mode. The NDS-OM is an electronic, screen-based, anonymous, order-driven trading system for dealing in Government securities. The Reserve Bank owns NDS-OM and Clearing Corporation of India Ltd (CCIL) maintains it. These platforms are secured and safe for the investors to operate their securities trading accounts. If we draw parallels, the demat account services are provided by depository participants (DPs) who serve as representatives of two central depositories in India – the National securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) who maintain Demat accounts. In this case CCIL is the account keeper whereas RBI is the host for allowing trading through its own outfit NDS -OM platform to RDG account holders. Unlike DPs, no fee will be charged for opening and maintaining RDG account with RBI. The opening up G-Sec markets to retail investors will create competition for all public savings seeking financial intermediaries. Primary Dealers (PDs) are expected to provide buy-sell quotes so that such retail investors can deal in G-secs in secondary market. 

The entry of another safe investment avenue – RDG accounts is set to stiffen competition for equity markets, mutual fund entities, banks and other financial intermediaries. Assets under management (AUM) in mutual funds saw a big leap from Rs. 26.85 trillion in September 2020 to Rs. 36.73 trillion in September 2021. Stock markets have done well – BSE crossing 60000 Mark and NSE 18000 mark and the ascent continues. 

Bank deposits are Rs.157.12 trillion with demand deposit component at Rs.18.26 trillion. With India’s gross domestic savings rate at 31.4 percent in March 2020, there could be demand for investment in G-Secs through RDG account posing huge competition to financial sector intermediaries. The other intermediaries will have to fine-tune their quality, range and offerings to protect their turf. 

The move is poised to shift the holding pattern of G-Secs. As of now government securities are largely held by banks (39 per cent of outstanding) followed by insurance companies (25 per cent) and RBI (15 per cent). Provident funds own 5 per cent and mutual funds and FIIs another 2 per cent each. With the increase in AUM, mutual funds are tilted more towards holding of G-Secs. Retail investors along with corporates do have exposure to the government bond market but through mutual funds. This equation will now change with entry of retailers.

With 12000 registrations since its launch on November 12 till 2.30 pm on November 13, the scheme is set to gain popularity soon. The psyche of investors is always tilted towards sovereign guarantees. RBI and the government driving the scheme is bound to get savings diverted to it, as more information of the scheme reaches the people. 

Moreover, a small sum of Rs.10000 and in multiples thereof is good for investing in G-Secs and a minimum of one gram of gold when investing in Sovereign Gold Bonds (SGB). 

The maximum investment limit per bid is Rs. 2 crores for central government securities and T-bills and one percent of holding under SGB.  Easy access to G-Secs so far was not available and hence the newly opened channel can eventually work towards softening the yield curve and widening the scope. It can be a game-changer if awareness is created among retail investors. Financial literacy, digital literacy, and sensitivity towards cyber security is the hallmark of societal safety and building confidence in the increasing digital investment modes. 



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Views expressed above are the author’s own.



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