RBI Notification

RBI’s Retail Direct Scheme to facilitate investment in G-Secs

As honourable Prime Minister, Shri Narendra Modi, launches the Retail Direct Scheme of RBI, individual investors can now directly buy government securities such as treasury bills, sovereign gold bonds, and state development loans from both primary as well as secondary markets.

New investment scheme

Under this initiative, retail investors (or individuals) will be able to create an online Retail Direct Gilt Account (RDG Account) with the Reserve Bank of India (RBI). These accounts can be connected to their savings bank accounts.

The central bank originally proposed the Retail Direct Scheme in February. Individual investors are encouraged to invest in government securities (G-Sec) through this arrangement. G-Secs are government-issued debt instruments. Prior to the Retail Direct Scheme, retail investors could only purchase G-Secs through non-competitive bidding in major stock market auctions. The other alternative option to invest in G-Secs was through the debt mutual fund schemes that made investments in government securities.

Given the sovereign guarantee, G-Secs are exceptionally secure instruments because they are issued by the government. The Retail Direct Scheme helps to broaden the G-Sec market, which has become necessary due to the increasing magnitude of government borrowing in recent years.

Features of the Retail Direct Scheme

The salient features of the scheme are as follows:

1. The retail investors can register/create a Retail Direct Gilt (RDG) account with RBI and invest a minimum amount of rupees 10,000 and multiples thereof in Central Government Securities (CG), State Government Securities (SG), and Treasury Bills (T-Bills). The registration can be made by using the online portal (https://rbiretaildirect.org.in).

2. The minimum investment unit for a Sovereign Gold Bond (SGB) is 1 gm. Moreover, the RBI has set a maximum investment restriction per bid of rupees 2 crores for CG securities/T-Bills and 1% for SG securities.

3. The scheme stipulates that there would be no charges for creating and maintaining an RDG account with the RBI. The payments for transactions can be done using online banking through a savings bank account or using the Unified Payments Interface (UPI).

4. All individual investors can open an RDG account with the Reserve Bank. Investors must have a PAN issued by the income tax department, a rupee savings bank account in India, KYC documentation, and a registered email and cell phone number. The scheme is also open to non-resident retail investors who are entitled to participate in G-Secs under the Foreign Exchange Management Act (FEMA)^[1].

5. The investors will be subject to KYC (know your customer) standards if they register an account on their own or jointly. Both account holders must complete the KYC procedure if they have a joint account. The bank account must be verified by the investor as well. The account will be opened when the KYC procedure is completed successfully, and information will be delivered through the mail. The nomination will be required as well.

6. After opening an RDG account with the RBI, a retail investor can submit non-competitive bids in all primary offerings of central government securities. Treasury bills and sovereign gold bonds (SGB) are examples of this. The investor might also make non-competitive bids on state government securities. The RBI’s trading system now allows investors to access the secondary market also.

7. Any interest or maturity proceeds paid on a specific G-Sec will be deposited directly to the bank account that the investor has registered.

8. Retail investors now have access to the secondary G-Sec market also, which is a significant benefit of this scheme. Through the RBI’s Retail Direct portal, you may get to the secondary market portal (NDS OM). CCIL (Clearing Corporation of India Ltd) will give a unique identification number to each retail direct investor who chooses to trade on the secondary market. The order matching and request for quotation (RFQ) components of the platform are then accessible to these investors.

9. After transferring funds to the NDS OM retail portal via means such as net banking or UPI, RDG account holders can place buy orders. Sell orders can also be put up to the amount of money in the RDG account. T+1 is the time it takes to settle a deal (that is the settlement of the trade takes place in one working day).

Benefits to retail investors

Easy access to government securities was formerly unavailable to individual investors. But with the option to purchase government securities through the RBI portal, individual investors will now be able to invest for durations ranging from one to thirty years in a fully risk-free environment.

The honourable Prime Minister said that the Retail Direct Scheme will strengthen the economy’s inclusiveness by allowing the middle class, employees, small company owners, and elderly people to invest their modest savings directly and safely in government securities. The small investors can be assured of safety since government securities contain a provision for guaranteed settlement.

According to analysts, the G-Sec market has been mostly dominated by institutional investors such as banks, insurance firms, and mutual funds, with lot sizes of rupees 5 crores or more, and retail involvement has been restricted. Even if ordinary investors were able to purchase debt mutual funds that invested in G-Secs, the three-year investment horizon required to qualify for long-term capital gains deterred many of them.

Because G-Secs offer a risk-free rate and hence no credit risk, they have the biggest volume in the fixed income market. The RBI’s Retail Direct Scheme will allow investors to invest in G-Securities across a range of tenors, with variable investment horizons and the potential to receive monthly cash flows via risk-free coupons.

Response to the Retail Direct Scheme

Since its inception on November 12, 2021, the Reserve Bank of India (RBI) has claimed that its Retail Direct Scheme (RDS) has generated an encouraging response, with over 12,000 registrations as of 2.30 pm dated November 13, 2021. The program aims to make it easier for ordinary individual investors to invest in Government Securities (G-Secs).

Investors in Sovereign Gold Bonds (SGBs), which are estimated at roughly 4.50 lakh, are likely to actively participate in G-Secs through the medium of RBI’s RDS. According to central bank sources, the scheme is envisioned as a one-stop solution for retail investments in G-Secs.

In nutshell

Individual investors can now invest in government securities (G-secs) through the Reserve Bank of India’s Retail Direct Scheme, which is a one-stop solution for them. The Government of India and the Reserve Bank of India have focused on encouraging retail involvement in the government securities market.

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