You are currently viewing Here’s how you can invest in government bonds online. Learn everything about RBI Retail Direct Scheme

Here’s how you can invest in government bonds online. Learn everything about RBI Retail Direct Scheme

The RBI’s Retail Direct scheme is considered to be a praiseworthy initiative of the government. This scheme allows for an easy, simple and safe investment process for the retail investors in the government securities market. Let us understand about this scheme in detail:

What is the RBI Retail Direct Scheme?

The RBI’s retail direct scheme was launched by the Modi government on 12th November 2021. This scheme allows the retail investors to directly take position in the government securities market for free, which means that the common man will now be able to buy and sell securities issued by both, the centre as well as the state. 

Through the retail direct scheme, the investor will be able to enter into buy and sell transaction in the primary as well as the secondary market, and what’s better is there will be no intermediary involved in the whole process. 

So how will the whole process take place? Let us read on further to find out.

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How to register for RBI Retail Direct Scheme? 

The investor is required to open an “Retail Direct Glit Account” or an RDG Account through an online portal. The investor would be granted access to the Negotiated Dealing System-Order Matching Segment (NDS-OM), post a successful opening of the RDG account. The NDS-OM is the trading platform, where the investors will be able to place bids (to buy or sell) in primary auctions. It is primarily an anonymous order matching system, where the investor will put in the buy/sell order which will go through once the NDS-OM finds the suitable match. 

Retail investors will be able to invest a minimum of ₹10,000 and in multiples thereof in Central Government Securities and State Government Securities. 

How to register for the RBI Retail Direct Portal?

Investors can register on the web portal the RBI Retail Direct, by filling out the online form and verifying their information with the OTP sent to their registered mobile number and email address. After completing the registration process, an ‘RDG Account’ will be created, and instructions for accessing the web portal will be sent through SMS/e-mail.

Who is eligible for opening the RDG account?

As per the notification issued by the RBI dated July 12, 2021, a retail investor will be able to open the RDG account if they have the following:

  • Rupee savings bank account maintained in India;
  • PAN issued by the Income Tax Department;
  • Any officially valid document such as Aadhaar, Voter ID for KYC purposes;
  • Valid email ID; and
  • Registered mobile number

The RDG account can be opened singly or jointly with another retail investor who meets the eligibility criteria. Another point to note is that a Non-Resident Indian (NRI) can also open this account provided they meet the above-mentioned eligibility criteria. 

What are the bonds that will be available for buy and sell?

The following securities will be available for buying and selling, along with their auction dates as per the RBI:

S. No.Government securityPrimary auction usually held on
1Government of India Treasury Bills (T-Bills)Wednesdays
2Government of India dated securities (dated G-Sec)Fridays
3State Development Loans (SDLs)Tuesdays
4Sovereign Gold Bonds (SGB)Weekly windows announced by RBI in its press release

Benefits of the scheme:

Earlier there was no easy way for the retail investor to invest in government bonds directly, but with the rolling out of this scheme, an easier pathway has been created which will allow for greater participation in the bond market. Following are some benefits that the scheme brings with it:

  1. Expansion of the bond market:

This scheme will result in opening up of a new and easier avenue for investment in the bond market, which is a big development for a country like ours. This will lead to its subsequent expansion and development of the bonds market.

  1. Suitable avenue of investment 

Investing in this scheme will allow investors to gain a regular income via interest payments, which will be paid twice a year. This will an attractive avenue of investment for people who wish to take on minimal risk, ideally senior citizen who look out for safer investment opportunities.

  1. Free of charge:

The process of opening the gilt fund on the RBI direct portal is free of charge. Further the payments for the transactions can be made via net banking and UPI. 

  1. Credit Risk:

Even though the money parked in the government securities is for a longer time duration, it faces zero credit risk which makes it look attractive to long term investors. 

Drawbacks of the scheme 

  1. Lack of knowledge:

The retail investors don’t possess a lot of knowledge when it comes to the G-sec markets, as earlier experts used to deal in such securities. This can be one of the major hurdles of this scheme.

  1. Low Liquidity:

The secondary markets of the government sector lack the required liquidity even though it is considered one of the safest investment options. A low liquidity cannot seem attractive to potential investors.

  1. Choosing the right security:

Choosing the right government security can also prove to be a drawback, due to the above-mentioned factors, while additionally investors also need to be wary of the fact that the income of the government securities is taxed in the hands of the investor.  

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Final Thoughts

As the government securities sector was largely dominated by the institutional investors, little or no scope was there for retail participation but this is for the first time for India where retailer investors have a simple and direct route for investing in government securities market. This can provide investors with a much-needed diversification of their portfolios, while also helping to expand the bonds market. 

While the scheme is still in its nascent stages, and might feel a little unclear at times, given a little time to evolve the minor inefficiencies would solve themselves, thus bringing in full force the much needed change for investors across the nation. 

Manoj Amarwal
Saarthi Dream
(Saarthi for your dreams)