Bond markets: Invest in G-Secs with RBI Retail Direct Gilt


By P Saravanan and Sumit Banerjee

The Indian equity markets have progressed in leaps and bounds to keep the investor at the centre of the initiatives. However, the bond markets remained fairly out of reach for individual investors as it is dominated by the institutional investors. That is history now. On November 12, 2021, Prime Minister Narendra Modi launched the RBI Retail Direct Gilt scheme with the vision of allowing retail investors to buy government securities.

What is RBI Retail Direct Gilt?
This scheme allows the investors to open a Retail Direct Gilt (RDG) Account to invest in primary issuance and secondary market transactions in government securities. Investors can bid for four kinds of securities such as Government of India Treasury Bills, Government of India dated securities, Sovereign Gold Bonds, and state development loans through this account.

New investment avenues
RBI RDG is a new investment avenue, especially for conservative investors who prefer a safe investment vehicle over equity and derivative instruments. These investors generally restrict their investments into fixed deposits, PPF, etc. Under this scheme, the four securities are available for investors to diversify their portfolio based on product and duration. The treasury bills allow investments for smaller durations of 91-days, 182-days, and 364-days. In contrast, the SGBs have a maximum tenor of eight years (early redemption is allowed after five years), and government dated securities can be of longer tenors of even up to 10 years.

The RBI RDG scheme changes the way the smaller investors in India access gilt securities. Rather than going for an indirect route of investing in these securities through insurance schemes or mutual funds targeted at gilt securities, the investors can directly invest through the newly launched scheme. Since there is no fee associated with investing through RDG except for payment gateway fees, there will be savings upfront.

Used as a collateral
The scheme also allows the securities to be pledged or a lien to be marked on them. This facility increases the liquidity of securities. It also allows the securities to be provided as collateral for loan facilities from financial institutions. This feature of pledge/ lien/collateral is beneficial for the investors as they can retain the instrument’s ownership while raising funds and financial institutions also prefer to have highly liquid securities as collateral.

Additionally, the probability of loss in value of these securities is much less compared to other asset classes such as residential or commercial properties, making them preferable security as collateral.

Available for minors too
The scheme is also available for minors but both the minor and the guardian should open accounts. This, coupled with the facility of gifting government securities to other retail direct investors, makes it easier for parents to teach savings and investing habits in their children from a young age. The gifting facility also allows easy transfer of securities from one retail direct investor to another.

To conclude, from customer service to governance mechanisms and user-friendly interface to information dissemination, the government and the regulators have made it easier for individual investors to directly invest in the gilt edge instruments through this scheme.

Saravanan is a professor of finance, and Banerjee is a doctoral candidate at IIM Tiruchirappalli


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