Recently, the Prime Minister has launched the Reserve Bank of India (RBI)- Retail Direct Scheme to open up the Government bond market for the retail investors.
- In February 2021, RBI proposed to allow retail investors to open gilt accounts with the central bank to invest in Government securities (G-secs) directly.
- Under the scheme, retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with the RBI.
- Retail Investor is a non-professional investor who buys and sells securities or funds that contain a basket of securities such as mutual funds and Exchange Traded Funds (ETFs).
- A Gilt Account can be compared with a bank account, except that the account is debited or credited with treasury bills or government securities instead of money.
- The scheme places India in a list of select few countries offering such a facility.
- The move is aimed at diversifying the government securities market, which is dominated by institutional investors such as banks, insurance companies, mutual funds and others.
- While foreign portfolio investors were allowed to invest in G-secs, their holding is around 2-3% in the overall market.
- So far, in the government securities market, small investors class, salaried class, small traders had to invest through banks and mutual funds in an indirect manner.
- It will make the process of G-sec trading smoother for small investors therefore it will raise retail participation in G-secs and will improve ease of access.
- This measure together with relaxation in mandatory Hold To Maturity (securities that are purchased to be owned until maturity) provisions will facilitate smooth completion of the government borrowing programme in 2021-22.
- Allowing direct retail participation in the G-Sec market will promote financialisation of a vast pool of domestic savings and could be a game-changer in India’s investment market.
SOURCE: THE HINDU,THE ECONOMIC TIMES,MINT