Indian retail investors are going to have a fresh new debt instrument called the 'Retail Direct Investment' in their investment basket soon. In this scheme, small or retail investors will be able to invest directly in Government securities. On a press release during July 2021, RBI notified the RDI scheme publicly. However, the launch date of the scheme is still undisclosed. But we are expecting it will be launched during the end of 2021. The "Retail Direct Investment" is primarily focused on facilitating Indian residents to invest directly in government securities. In this article, let us talk about how the RDI scheme is beneficial for retail investors in India.
Retail Direct Scheme is nothing but a window to allow retail individuals to participate in the primary Government bond market using an Online Retail-Direct Gilt account managed by the Reserve Bank of India. Earlier, there were no ways in investing in g-Secs or T-bills by retail investors directly. Only institutional investors, stockbrokers, HNIs, banks, fund houses, etc., were allowed to participate in Government securities and bonds.
In order to participate in the primary Gilt market, an individual needs to open the Retail-Direct Gilt account. This account will facilitate the bidding and buying as well as selling securities. This means retail investors will have access to both primary and secondary Gilt markets from the single RDG account. The RDG (Retail-Direct Gilt) account is managed by the Reserve Bank of India. Investors can avail following securities from an RDG account so far:
The primary feature of an RDG account is to allow individual investors to invest in Government-issued debt instruments. As of now, no such direct route is available to invest directly in gilt instruments. All you can invest indirectly is through debt or gilt mutual funds. Let's discuss the basic features of the Retail Direct scheme:
Individual investors are allowed to bid for securities or bonds on RDG online platform during the tranche. But here is the good thing is that, unlike institutional investors, retail individuals are not bound in bidding competition. That means, on bidding for a security, you are most likely to get the allotment.
When you buy bonds or securities directly from the issuer, you are likely buying from a primary market. In this case, when investors get their allotment of bonds through the bidding process from RBI, they are buying from the primary gilt market.
On the other hand, the secondary market allows existing bondholders to sell or purchase bonds or securities anytime. However, the price of bonds in the primary and secondary markets can be different due to demand and supply. The Retail-Direct Gilt account certainly offers both primary and secondary market features. Thus, buying-holding-selling will be easily possible with the help of a single platform.
Like other investments, retail investors can add up to two nominees with their Gilt account. In case of the death of the investor, the available securities will be returned to the registered nominees as per the ratio fixed by the investors.
An RDG account holder will have the option of gifting securities to another RDG account holder.
An Indian retail investor/ individual is allowed to open an RDG account if he/ she has the following documents:
NRIs (Non-resident of India) are also allowed to invest in Govt. Securities under Foreign Exchange Management Act, 1999. A retail investor can open the account singly or jointly with another retail investor who meets the eligibility criteria.
Investors can register through an online portal by filling up the one-time registration form using OTP verification of registered mobile number and email id. Both primary and secondary market transactions on NDS-OM need an RDG account.
In the secondary market, the registered investors can buy or sell the Govt. Securities through NDS-OM (odd lot segment/ RFQ) during trading hours.
Well, RBI's Retail-Direct account carries multiple benefits. It is a very convenient way to invest in Gilt securities directly. The platform is almost free to use, and you are likely to pay zero fees, no transaction cost, no maintenance charges. Most importantly, you can buy and sell your holdings from one single account. So, the liquidity issue is certainly not going to happen.
If you invest in liquid or gilt mutual funds for the short to medium term, you can definitely try the Retail-Direct Scheme. Or, as I already said, you can choose this platform as an alternative to Bank Fixed Deposit. However, in terms of taxability, there is a negative aspect to the RDG scheme. Direct investment in G-Sec, the capital gain tax will be calculated based on the traded securities in a financial year. But in mutual funds, capital gains are calculated for the holding period of units.
Recommended Article: PPF vs ELSS: Detailed Comparison & Which is Better