Express news service

NEW DELHI: Retail investors are no strangers to direct investment in quasi-government bonds – remember tax-free infrastructure bonds issued by government institutions like NHAI, REC, PFC!

Yet, for a long time, they did not have direct access to government securities (G-sec) like treasury bills, government dated bonds, government development bonds, etc. But, they could indirectly have exposure to these instruments through the employee provident fund, mutual societies and insurance schemes.

In February this year, the Reserve Bank of India (RBI) decided to allow retail investors direct online access to the government securities market – both primary and secondary – as well as open their accounts. of golden securities (Retail Direct) with the RBI. .

The central bank also unveiled details of its direct retail program. “While you can’t expect retailer involvement to come overnight, it’s a step in the right direction,” said Anil Rego, founder and CEO of Rights Horizon, a financial advisory firm .

What is the Retail Direct program

The Retail Direct Scheme allows retail investors to invest directly in government bonds and treasury bills through an online gilt account – also known as the Retail Direct Gilt Account (government bonds in India and many other Commonwealth countries are called Gilts).

Having such an account allows investors to have access to both the primary market (direct purchase from the issuer, in this case RBI) and the secondary market (where an investor can buy a bond at the prevailing market price from others).

With a golden account, one can invest in government treasury bills, government bonds of various maturities, gold sovereign bonds, and government development loan (SDL) bonds. Anyone with a Rupee savings account, Permanent Account Number (PAN), any valid official document for KYC purposes, valid email address and phone number Registered mobile phone can open a Gilt account. You can also open a joint account with another eligible person.

Non-Residents of India (NRIs) who are eligible to invest in government securities under FEMA are also eligible to open an account under the program. No fees will be charged for opening and maintaining an account with RBI. However, the fees for the payment gateway etc. will be the responsibility of the registered investor.

Should we opt for it?

Most retail investors would already have some exposure to government securities through mutual funds, insurance plans or contingency funds.

Direct access to the government bond market provides another channel for investing in these bonds and securities. The question to be asked here is whether it makes sense to invest directly in these securities. Apart from this, one should also be aware of the risks associated with investing in G-sec.

“You also need to be aware of liquidity risk and interest rate volatility, which are also associated with fixed income investments,” says Lakshmi Iyer, CIO-Debt and Head Products, Kotak Mahindra Asset Management Company.

While government securities present liquidity and interest rate risks, the credit risk (default risk) is almost zero because they are backed by the government. However, since government bonds have a long-term maturity, they could be subject to volatility due to changes in interest rates.

Investors, on the other hand, can neutralize interest rate risk by holding a government bond to maturity. Vishal Dhawan, an independent financial planner, says investors in lower tax brackets, looking to lock in to long-term rates and hold to maturity, may consider investing directly in Gs. -dry.

There could also be liquidity risks associated with the bond market. Although the government bond market has sufficient liquidity, government bonds could suffer from risk, which means the inability to sell bonds when liquidity is needed.


Understanding the taxation of gains made on bonds could be taxing for investors if they invest directly. If a bond is held to maturity, the gains would be considered interest income and taxed according to the income tax slab.

However, if the bond is sold in the secondary market before maturity, then capital gains tax will have to be paid depending on the holding period. The tax rules for gold sovereign wealth funds are different from normal government bonds.

While allowing direct private participation in G-sec is a welcome move, regulators should invest in raising awareness of investing in these options, as most retail investors would not even know the difference between a return and a return. coupon, not to mention the risks associated with these instruments.

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