The almost 5-lakh strong retail investors in G-secs are all set to get a new option – the systematic investment plan (SIP) route to participate in the government bond market. Experts believe that this move can also bring better traction towards the government securities market, provided the operational part is easy.
T-bills gaining momentum as short-term investment tools
Treasury bills are short-term government securities with tenure up to one year, which are available at a discount price and redeemed at face value. It offers investors efficient cash management with greater returns compared to bank deposits, according to experts.
Data shows that treasury bills constitute 68% of the primary market subscriptions as of August 4. Investments in T-bills were Rs 4,748.51 crore on August 4 compared to Rs 3,457.63 a year ago – a rise of 37%. The number stood at Rs 1,679.37 crore in 2023.
According to Anurag Mittal, head of fixed income and UTI Mutual Fund, “A lot of people, especially with the rates of savings accounts coming down, are looking for safer options for short-term cash deployment needs,” he said.
Mittal added that one has to see how it materialises operationally, and if it is easy, pone could see some interest especially, from HNIs though it should not be seen as a pure fixed income allocation, but as a cash management option.
“The new SIP feature on the RBI Retail Direct platform adds welcome convenience for retail investors managing short-term surplus. 91-day Treasury Bills (T-bills), currently yielding around 5.5%, offer a more rewarding option compared to 91-day bank fixed deposits, which typically return 4% to 4.90%,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.
Platform ease, awareness and taxation hold the key
Liquid funds are offering around the same return annually, with the three-month category average return being at 1.46%. However, the risk factor is higher.
Consequently, industry players like Mataprasad Pandey, Vice President at ARETE Capital Service believe that it is an effective idea to start investments. Also, from a real returns perspective, with the average inflation being 4.63% in FY25, returns from G-Secs have been higher.
With the new feature, RBI allows an auto-bidding facility for T-bills, covering both investment and re-investment options through its Retail Direct platform. This helps investors to mandate automatic placement of bids in primary auctions of T-bills, according to the RBI release. The minimum investment amount is Rs 10,000.
Though the move aligns with RBI’s objective to boost retail participation, market participants are uncertain about the long-term impact. JM Financial Services believes, “The long term impact would depend on sustained awareness creation efforts, ease of user experience, better tax incentivisation and the product comparison with alternate investment options, especially in a changing interest rate environment.”
The RBI launched the Retail Direct platform in November 2021 to increase retail participation in government securities. Through the platform, retail investors can open a ‘Retail Direct Gilt’ account with the RBI and trade in government securities. Investors can invest in T-bills, floating rate savings bonds, central and state government securities through primary and secondary markets.
According to RBI data, the total number of registrations more than doubled to 4,83,659 as on August 4 compared to 2,30,590 a year ago. The total primary market subscriptions rose 38% on year to Rs 6,970 crore as on August 4.
Though there has been an improvement over years, the platform is still not able to get the adequate popularity. Srinivasan said, while the RBI Retail Direct platform has been gaining ground gradually, public awareness remains limited. “The addition of SIP can play a pivotal role in attracting more retail participation in the government securities market,” he added.