An Investor's Guide To RBI Retail Direct Scheme | ETMONEY

The Reserve Bank of India has launched their Retail Direct Scheme. Under the workings of this scheme, retail investors can now transact in government securities directly without having to go through a broker or a mutual fund.

In this video, we examine this scheme in greater details as we look to answer some the most commonly asked questions on this topic.

👉 Chapters:
00:00 Introduction
00:57 WHAT KINDS OF GOVERNMENT SECURITIES CAN ONE INVEST IN?
02:16 WHAT ARE THE BENEFITS OF BUYING GOVT. SECURITIES?
03:21 WHY SHOULD ONE BUY THROUGH THE RDG ACCOUNT?
04:40 IS INVESTING IN G-SECS 100% SAFE?
05:52 WHAT IS A RETAIL DIRECT GILT ACCOUNT?
07:08 HOW TO OPEN A RDG ACCOUNT?
08:53 HOW TO BUY / SELL SECURITIES THROUGH THE RETAIL DIRECT PLATFORM
09:50 WHAT ARE THE LIMITATIONS AND CONCERNS WHILE INVESTING UNDER THE RETAIL DIRECT SCHEME?
11:16 SHOULD YOU INVEST UNDER THE RBI RETAIL DIRECT SCHEME?

👉 WHAT KINDS OF GOVERNMENT SECURITIES CAN ONE INVEST IN?

The RBI Retail Direct platform allows us to invest in four kinds of G-Sec.
The first kind are Treasury Bills or T-Bills that the Government of India uses to borrow for a short period of time typically between 91 and 364 days.
The second type of product offered under the platform are the Government of India Dated Securities which are nothing but long-term government bonds wherein the borrowing ranges from 1 year to 40 years. The third instrument on offer are State Development Loans or SDLs and as the name suggests, these are issued by a state government with a typical borrowing period of 10 years. And finally we have the Sovereign Gold Bonds which are RBI-issued government securities that are denominated in grams of gold. So T-Bills, Govt. of India bonds, SDLs and the sovereign gold bonds are the 4 kinds of government securities that one can invest in, through the Retail Direct platform.

👉 WHAT ARE THE BENEFITS OF BUYING GOVERNMENT SECURITIES?

Benefit 1 is that these G-Sec carry very minimal credit risk which means that the only way you don’t get your principal back, is if the government of India defaults which is something it has never done in its history. A second benefit of G-Sec is that they offer decent yields over a longer duration and can be an attractive option for retirees and savers who prefer a low risk, moderate return investment product. The third benefit is that government securities are tradeable in the secondary and investors can make capital gains on them by accurately predicting the interest rate cycle. Benefit four is that G-Secs generally have a reasonable liquidity and it's a topic we’ll discuss in more details later in this video. And the final benefit of buying government securities is that it helps with an investor’s asset allocation and portfolio diversification efforts.

👉 WHY SHOULD ONE BUY THROUGH THE RDG ACCOUNT?

This account can be opened and operated completely free of charge which is the first benefit of using a Retail Direct Gilt account as it helps save on commissions and expense ratio that a broker or a mutual fund would normally charge.
The second benefit of using an RDG account is that it allows investment in T-Bills, government bonds and SDLs for as low as 10,000 rupees which then supports liquidity, affordability and wide-scale adoption of this facility.
Another benefit of your RDG account is that is allows the buying of Sovereign Gold Bonds at anytime.

👉 IS INVESTING IN G-SECS 100% SAFE?

Earlier in the video, we said that a G-Sec has little or no credit risk. This is definitely true for a country like India which amongst other things has a history of zero default, whose stock of foreign currency-denominated sovereign debt is very low, and even our short-term debt is worth less than 20% of our foreign exchange reserves.

But while a G-Sec is safe from a default perspective, its important to note that the price of these securities do keep fluctuating in the secondary market. As a matter of fact, prices of Indian G-Sec are affected by mere speculation in the direction of interest rate changes, inflation, market liquidity, RBI announcements etc. Which means if you are investing in these instruments with the purpose of making a profit via capital gains then while a G-Sec is safe from a credit risk perspective it’s price can have up and down movements depending on some of the external factors we mentioned earlier. On the other hand, if you are looking to hold these government securities until maturity then your safety level is on a much higher pedestal.


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