In news The RBI has announced a scheme under which retail investors will be allowed to open retail direct gilt accounts (RDG) directly with the central bank.
A “Gilt Account” means an account opened and maintained for holding Government securities, by an entity or a person.
What are the features of the scheme?
Objective: For improving ease of access by retail investors through online access to the G-secs market – both primary and secondary – along with the facility to open their gilt securities account (‘Retail Direct’) with the RBI.
This account can be opened through a dedicated online portal, which will provide registered users access to primary issuance of government securities (G-secs) and to NDS-OM.
NDS-OM means RBI’s screen based, anonymous electronic order matching system for trading in government securities in the secondary market.
This will provide one-stop solution to facilitate investment in G-secs by individual investors.
No fee will be charged for opening and maintaining the account with the RBI.
Non-Resident retail investors eligible to invest in government securities under Foreign Exchange Management Act, 1999 are also eligible under the scheme.
Do You Know?
When Government issues its securities first time (Primary Market) then authorized institutions are allowed to purchase G-secs. These institutions are called Primary dealers which include banks and finance related companies.
Once these have purchased the G-secs, other institutions such as RBI, Banks, NBFCs can purchase these securities in the secondary market
Few years back, RBI allowed individuals (retail investors) to participate in primary market as well as secondary market but not directly rather through other institutions.
Till now, Govt. securities was traded in a lot size of minimum Rs. 5 crore and by the institutional investors (banks, NBFCs etc., RBI) but now with the participation of retail investors, this lot size will be reduced and retail investors will be able to buy/sell govt. securities easily.
If a retail investor is able to sell his govt. securities easily (even of small value) that means more and better liquidity facility.
What is Government Security (G-sec)?
G-secs are debt instruments issued by the government to borrow money.
Like bank fixed deposits, g-secs are not tax-free.
They are generally considered the safest form of investment because they are backed by the government. So, the risk of default is almost nil.
However, they are subject to fluctuations in interest rates. So, they are not completely risk-free.
Such securities are short term (treasury bills having maturity period of 91 day, 182 day and 364 day) or long term (Government bonds with 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).
