Retail Direct: Retail investors can now buy government securities directly from RBI

By: |
February 5, 2021 11:29 AM

Currently, retail investors can buy government securities through non-competitive bidding in primary auctions and stock exchanges.

buy, government securities, rbi, Open Gilt Accounts, Retail Direct, Retail investorsGovernment securities carry the highest safety as far as principal and interest payment is concerned.

The RBI has proposed to provide retail investors with online access to the government securities market – both primary and secondary – directly through the Reserve Bank. The facility of buying government securities directly though RBI is to be called Retail Direct. This will be possible by opening Gilt accounts directly with RBI.

As of now, retail investors can buy government securities and hence it is not a new investment option for them. However, buying it directly from the RBI is the new route to own them now.

Government securities carry the highest safety as far as principal and interest payment is concerned. The coupon rate or the interest rate that the G-sec carries will be what you get if held till maturity of the bond.

Currently, retail investors can buy government securities through non-competitive bidding in primary auctions and stock exchanges are permitted to route primary purchases and also allows a specific retail segment in the secondary market.

The eligible retail investors have to participate in non-competitive bidding (NCB) at RBI through an aggregator or facilitator. NSE acts as one of the facilitators in NCB to aggregate the bids received from the retail investors and submits a single bid at RBI.

Going forward, retail investors can buy government securities directly from RBI by opening Gilt account.

RBI expects that the move will broaden the investor base and provide retail investors with enhanced access to participate in the government securities market. G-Sec are traded on stock exchanges and bond prices may go up and down but if held till maturity, the capital is safe.

A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the State Governments. Such securities are short term popularly called treasury bills, with original maturities of less than one year or long term generally called Government bonds or dated securities with an original maturity of one year or more.

In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.

Besides providing a return in the form of coupons (interest), G-Secs offer the maximum safety as they carry the Sovereign’s commitment for payment of interest and repayment of principal. G-Secs are available in a wide range of maturities from 91 days to as long as 40 years to suit the duration of varied liability structure of various institutions. G-Secs can be sold easily in the secondary market to meet cash requirements.

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