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All you need to know about RBI Retail Direct Scheme launched by Modi

Scheme aims to facilitate investment in govt securities by individual investors

RBI-logo-Shutterstock Representational image | Shutterstock

Prime Minister Narendra Modi on Friday launched two customer-centric initiatives of the Reserve Bank of India (RBI). One of them was the Retail Direct Scheme, while the other was an Integrated Ombudsman Scheme.

The Retail Direct Scheme was first mooted by the central bank back in February. This scheme aims to facilitate investment in government securities (G-Sec) by individual investors. G-Secs are debt instruments issued by the government. Before the retail direct scheme, retail investors could only buy G-Secs through non-competitive bidding in primary auctions through stock exchanges. The only other way to invest in G-Secs was via debt mutual fund schemes that invested in such securities.

Since they are issued by the government, G-Secs are extremely safe instruments, given the sovereign guarantee. The Retail Direct Scheme helps broad-base the G-Sec market, which had become a necessity given the growing size of government borrowing in the last few years.

“The Retail Direct Scheme will give strength to the inclusion of everyone in the economy as it will bring in the middle class, employees, small businessmen and senior citizens with their small savings directly and securely in government securities,” the Prime Minister said on launching the scheme.

As government securities have the provision of guaranteed settlement, this gives assurance of safety to the small investor, he said further.

Analysts point the G-Sec market was so far dominated by institutional investors like banks, insurance companies and mutual funds, with lot sizes of Rs 5 crore or more, with limited avenues for retail participation. Even if retail investors could buy debt MFs investing in G-Secs, the three year investment horizon needed to qualify for long-term capital gains put off many.

“G-Secs witnesses highest volumes within the fixed income market since they offer a risk-free rate, hence no credit risk. The RBI Retail Direct Scheme will enable investors to participate into G-Secs across various tenors with flexible investment horizons and with the ability to get regular cash flows through risk-free coupons,” said Nitin Shanbhag, senior executive group vice-president at Motilal Oswal Private Wealth.

Anjana Potti, partner at J Sagar Associates said the RBI Retail Direct scheme will put access to G-Secs on par-with the already robust corporate bond market.

Who can invest?

Under this scheme, all retail that is individual investors can open a retail direct gilt (RDG) account with the RBI. The investors must have a permanent account number (PAN) issued by the Income Tax Department, a rupee savings bank account maintained in India, documents for KYC and registered email and mobile number.

Non-resident retail investors who are eligible to invest in G-Secs under the Foreign Exchange Management Act (FEMA) are also eligible under the scheme.

How does it work?

Once a retail investor has opened the RDG account with the RBI, the investor can place non-competitive bids in the primary issues of all central government securities. These include treasury bills as well as sovereign gold bonds. The investor could also place non-competitive bids for securities issued by state governments.

Investors can now also access the secondary market through the RBI’s trading system.

Any interest that is paid on a particular G-Sec or the maturity proceeds will be directly credited to the bank account that the investor has linked.

What is the procedure of opening a RDG account?

Any investor who meets the criteria mentioned earlier can register on the retail direct portal (www.rbiretaildirect.org.in). An account can be opened singly or jointly and the investors will be subject to KYC (know your customer) guidelines. In case of a joint account, both the holders will have to complete the KYC process. The investor will also have to validate the bank account.

Upon successful completion of the KYC process, the account will be opened, details of which will be sent over mail. Nomination will also be mandatory.

There will be no fee for opening and maintaining the RDG account. There will be no fee charged by the aggregator for submitting bids in the primary auctions either.

Access to secondary market

A key advantage of this scheme is that retail investors now get access to the secondary G-Sec market too. The secondary market portal (NDS OM) can be accessed through the RBI’s Retail Direct portal. Each retail direct investor opting to trade on the secondary market will be issued a ID from CCIL (Clearing Corporation of India Ltd). These investors can then access the order matching and request for quote (RFQ) segments on the platform.

How can one trade in the secondary market?

RDG account holders can place buy orders after remitting funds via services like net banking or UPI to the NDS OM retail portal. Sell orders can also be placed to the extent of the balance available in the RDG account. The trade settlement happens on T+1 basis (that is the settle of the trade happens in one working day).


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