In Nov 2021, the Reserve Bank of India (RBI) rolled out a scheme for retail investors to invest directly in Government Securities or G-Sec which was earlier possible only for institutional investors such as Bank, Mutual funds, Pension funds, Primary Dealers, etc. The main aim of providing this platform is to increase retail participation in the G-sec market.
The RBI’s “Retail Direct Scheme” provides a one-stop solution to retail investors to facilitate investment in G-Sec. A retail investor can open a Gilt Securities Account – “Retail Direct Gilt (RDG)” account with RBI and using this account, he/she can buy and sell government securities through the RBI’s online portal – https://rbiretaildirect.org.in
What is Government Security (G-Sec)?
A G-Sec is an instrument issued by the Central Government or the State Government. Government issues G-Sec through RBI for financing various government initiatives/expenditures.
What are the benefits of investing in G-Sec?
Any investor who needs a regular risk-free income can opt for the investment in G-sec. It is a great help for retirees and individuals who are dependent on income generated from their accumulated sum of money. There are the following benefits of investing in a G-Sec :
Risk-free Investment: G-sec is issued by the government so there is no credit risk involved and in the domestic market context, G-Secs are risk-free.
Offers a decent yield for a long duration: G-secs are issued up to 40 years depending on the type of the G-sec and the yield curve extends up to 40 years. As the Government issues the G-secs at different points on the yield curve, it offers an attractive option for savers who need low-risk investment options for longer durations.
Prospect of capital gains: The price of a bond changes with changes in interest rate. When the interest rate goes down, the value of G-secs will increase and there will be a capital gain.
Liquidity: Previously, the G-sec could be only transacted on NDS-OM (Negotiated Dealing System Order Matching) after issuance. With the introduction of the Retail Direct Portal, a retail investor can now participate easily in the primary as well as in the secondary market.
Portfolio Diversification: The G-secs help to diversify the portfolio when mixed with equity and real estate and reduce the risk for an investor.
Zero charges under Retail Direct Scheme: Retail Direct Account is completely free of charge and does not involve any intermediary. It would reduce overall transaction charges for the individual investor.
What is the benefit of investing in G-Sec through a Retail Direct Gilt (RDG) account?
Before the RBI’s Retail Direct Scheme, an investor could use NSE goBID Platform and NSE Trading members such as brokers like Zerodha to purchase G-Sec in primary auctions through non-competitive bidding (NCB). Even an investor can purchase gilt mutual fund schemes. However, all these intermediaries will charge some cost for their services. Now, in the case of the RBI Retail Direct Scheme, there is no one-time, no brokerage charges, and no ongoing fee charges. This will reduce the cost of transactions for a retail investor.
What are the various types of G-Sec to invest through the Retail Direct platform?
An investor can invest in the following types of G-sec through Retail Direct Platform:
Treasury Bills (T-Bills): T-Bills are money market instruments, are in short term nature. These are presently issued in three tenors- 91 day, 182 day and 364 day. Treasury bills are basically a zero-coupon bond and do not pay any coupon or interest. T-Bills are issued at a discount to face value and redeemed at the face value at the time of maturity.
Dated Government Securities (dated G-Sec): Dated G-Secs are bonds that carry a fixed or floating coupon or interest rate. Such coupon/interest is paid on a half-yearly basis on the face value of the G-Sec. Generally, the tenor of Dated G-sec ranges from 5 years to 40 years.
State Development Loans (SDLs): SDLs are a loan that a State Government raises from the market. SDLs are dated securities wherein an Interest is paid at half-yearly intervals and the principal is repaid on the maturity date.
Sovereign Gold Bonds (SGB): An SGB provides a better substitute for physical gold wherein an investor also receives interest on half-yearly basis and at maturity, the investor receives the proceeds at the prevailing gold rate.
Who is eligible to open a Retail Direct Gilt Account with RBI?
A resident individual can open an RDG account with RBI for investment in G-Secs.
An Non-Resident individual can also invest in G-Sec under FEMA, 1999.
An individual can open only one account. The second holder in a joint RDG account may also open an individual RDG account.
Which facilities are available on the RBI Retail Direct Portal?
An investor can avail of the following facilities on the
RBI’s Retail Direct Online Portal:
An investor can buy G-Secs through primary auctions (non-competitive segment only).
An investor can buy or sell G-Secs in the secondary market which is a market for already issued G-Secs. The screen-based electronic anonymous order matching system called NDS-OM, provided on the portal, can be used to sell the bonds to other entities.
An investor can buy or sell Sovereign Gold Bonds (SGBs) in the primary and secondary market.
An investor can avail of various services such as account statement, nomination facility, pledge/lien, gift transactions, grievance redressal, and managing profile like contact details, etc.
How to open a Retail Direct Gilt (RDG) account?
A retail investor can open the RDG account in the following way:
1. Log in to https://rbiretaildirect.org.in and select “New Investor”.
2. A new page will open for Investor’s Registration. Select Single-mode or joint mode and fill up the full name, Pan, Mobile number, Email details, Date of birth and Login Name. Read the T&C and submit.
3. After Submit, new screen will show “Initiate KYC Process”.
4. Once you select “Initiate KYC Process”, the following page will appear.
5. Please keep the mentioned documents ready for the next step. Once you select the “Start” button, the following page will show. Select the “Next”.
6. If your CKYC is already done, the new page will show your CKYC number. Select “Search Details”. (If CKYC is not available, system will prompt for a fresh KYC.)
7. The next page will ask to review the details and submit.
8. Submit the Additional Personal Details.
9. Now Submit the FATCA and PMLA Declaration.
10. Select the Permanent and Correspondence address.
11. Upload your scanned signature.
12. Now, you need to select your bank and update your bank details. Here, you need to upload your bank account’s canceled cheque copy.
13. In this step, you will need to verify the details submitted and give your consent to credit an amount to your bank account for validation. Check your SMS received from the bank and enter the amount in the next step to verify. If the correct amount is entered, it will the status as Bank account verified.
14. In the next step, you need to mention the nominee name and details.
15. Now, the application is ready for submission. Review the details and submit.
16. After submitting the Contract, you will receive a email regarding the completing the Esign.
18. Once you select the esign link, it will take to verification page.
18. Check your details and signature and go to the next step.
19. Once you confirm, it will take to NSDL site for Aadhar e-verification.
20. After the Aadhar verification, you will receive a mail regarding the confirmation. The mail from RBI retail direct will contain the signed documents and contract copy.
The login credential will be shared by the RBI retail direct within 2 days and thereafter you can start transacting the G-sec. Congrats!!
