The Prime Minister addressing the nation live on TV has become synonymous with new announcements or developments. Last week, he was live on TV announcing two new customer centric initiatives.
However, this time he wasn’t on TV at 8 PM but spoke to the nation during the day.
So, what did he announce that caught everyone’s attention, especially the retail investor community?
- RBI Retail Direct Scheme
- Integrated Ombudsman Scheme.
In this article we talk about the RBI Retail Direct Scheme in detail.
For the uninitiated, Retail Direct Scheme opens up a $1.1tn government bond market to retail investors. This means that you can now invest in government bonds directly through RBI. Shaktikanta Das, RBI governor, first spoke about this initiative in a February policy review calling it a major structural reform.
According to RBI website, “Retail Direct Scheme is a one-stop solution to facilitate investment in Government Securities by individual investors. Under this scheme individual retail investors can open a Gilt Securities Account – “Retail Direct Gilt (RDG)” account with RBI. Using this account, retail investors can buy and sell government securities through the online portal – https://rbiretaildirect.org.in
Does this announcement mean you could not invest in G-Secs earlier?
Earlier, a retail investor could only buy G-Secs through non-competitive bidding in primary auctions through stock exchanges. The only way to invest in G-Secs was via debt mutual fund schemes that invested in such securities.
Big institutional investors like Banks, Mutual Fund houses, insurance companies etc. with lot sizes of Rs. 5crores and higher dominated the Government securities market. So, retail participation was rare.
If you are wondering why the government introduced this structural reform now, you are not alone. The Retail Direct Scheme will help the government big time.
It was rather a perfect time to introduce such an initiative. RBI had cut lending rates to battle the covid-19. This gave people access to cheap money. However, the rising inflation is adding pressure on the central bank to lift rates higher. Tighter monetary policy is expected to weaken the demand for bonds, making it hard for the government to fulfill its near-term borrowing..
The Retail Direct Scheme will help the center amass idle money from small investors to meet its financial requirement to fund public expenditure projects. We expect this to result in better price discovery and yield curve for government bonds.
You can invest in four Government Securities
Retail Direct Scheme allows retail investors to buy and sell in the following securities.
- Government of India Treasury Bills (T-Bills)
- Government of India dated securities (dated G-Secs)
- State Development Loans (SDLs)
- Sovereign Gold Bonds (SGB)
You get access to the Secondary Market
A major plus point of this scheme is that a retail investor now gets access to the secondary G-Secs market. Retail investors can directly access the secondary market portal Negotiated Dealing System-Order Matching Segment (NDS-OM).
Once a retail investor opts to trade his/her G-Secs on the secondary market, CCIL (Clearing Corporation of India Ltd.) will send an ID. These investors can then access the order matching and request for quote (RQE) segment on the platform.
You can invest without worry
One more reason for the retail investors’ happy faces is the safety net the G-Secs come with. Since the government issues these securities G-Secs are extremely safe instruments..
Further, the scheme is based on inclusivity. The PM Narendra Modi, in his speech said, “The Retail Direct Scheme will give strength to the inclusion of everyone in the economy as it will bring in the middle class, employees, small businessmen and senior citizens with their small savings directly and securely in government securities.”
The retail investors have welcomed this initiative. Per one article in The Economics Times, over 20,000 accounts were opened till 9 pm on Sunday after the Prime Minister announced the scheme.
That’s it from us today. We will cover more about this topic in the next article.
Meanwhile, now that you know how safe and secure Retail Direct Scheme is, will you invest in G-Secs?