With an aim to increase retail participation in government securities, Prime Minister Narendra Modi today launched the 'RBI Retail Direct Scheme'. With the help of the scheme, you can now access the government securities market – both primary and secondary -- by opening a gilt securities account ('Retail Direct') with the Reserve Bank of India (RBI). Earlier, the retail investors were not allowed to deal with RBI, but now an individual can directly transact in government securities through RBI.
The bonds on offer for the retail investors include Government of India Treasury Bills, Government of India dated securities, Sovereign Gold Bonds (SGB), and State Development Loans (SDLs).
Here are a few things to know before investing through the 'Retail Direct Gilt Account' (RDG Account) with RBI.
How much return to expect?
Investment in government securities is considered a safe investment option as it has sovereign backing. It also helps in diversifying the portfolio beyond equities. Currently, the return on the 10-year GOI bond is close to 6.5 per cent whereas a 3-year GOI bond will provide a return of approx 5.1 per cent.
"Investors having safety as paramount interest should look to allocate greater portion of their fixed income portfolios in these bonds. The instruments have varying maturity from 3 months to 40 years. They are the safest instruments and investors match their investment horizon to the maturity of the bonds," said Sandeep Bagla, CEO,TRUST Mutual Fund.
Are there any risks?
These are risk-free investments if held to maturity. "Price of the bonds will fluctuate depending on inflation expectations and other macroeconomic factors in the interim period. Investors should also be mindful that the market for small retail lots may not be very liquid initially," said Bagla.
If a government bond is held till maturity, the interest will be taxable according to the respective tax slab and there will be no capital gain tax. If the bond is traded in the secondary market before reaching maturity, then the seller will be liable to pay capital gains tax according to the holding period.
"When we look at taxation perspective, government securities score more than FDs and even corporate bonds. Listed government securities with maturity beyond one year are considered long term and capital gain tax would be at 10 per cent. Here investors cannot claim the benefit of indexation. If the benefit of indexation is claimed, the tax would be 20 per cent. Long term capital gain tax on unlisted government securites would be 20 per cent and indexation benefit cannot be claimed. Short term capital gain on government securites would be as per regular slab rate," said Sujit Bangar, Founder, Taxbuddy.com.
How to purchase?
Investors will need to open the RDG account on the portal with RBI after doing KYC. The online portal will also give the registered users the facility to access primary issuance of government securities along with access to NDS-OM. NDS-OM means RBI's screen-based, anonymous electronic order matching system for trading in Government securities in the secondary market.
"Investors will need to first fund their account before placing purchase orders. Primary auctions take place every week whereas the secondary market is open from 10 am to 3:30 pm Monday to Friday. Similarly, selling can be done on the portal," said Bagla.
Who can buy it?
The RDG account can be opened singly or jointly but for opening the account you need to have a savings bank account, Permanent Account Number (PAN), KYC documents, email id and registered mobile number. Non-resident retail investors can also invest in it provided they are eligible to invest in government securities under Foreign Exchange Management Act, 1999.
There can be a maximum of two nominees. In the event of death, the securities available in the RDG Account can be transmitted to the RDG Account or any other government securities account of the nominee on submission of a death certificate and transmission form.
You can also avail an online facility to gift government securities to other Retail Direct Investors.
Any query or grievances can be raised on the portal which will be resolved by Public Debt Office (PDO) of RBI in Mumbai.
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