RBI Nudges Retail Investment In Government Bonds With Direct Access

Retail investors will now have greater access to the government bond market via a new direct investment option being offered by the central bank.

The Reserve Bank of India on Friday announced that retail investors can buy and sell government securities directly via accounts held directly with the central bank. Details of the facility and how it will work are awaited.

“It is proposed to provide retail investors with online access to the government securities market – both primary and secondary – directly through the Reserve Bank (‘Retail Direct’). This will broaden the investor base and provide retail investors with enhanced access to participate in the government securities market,” RBI Governor Shaktikanta Das said in his comments following a scheduled monetary policy review.

“This is a major structural reform placing India among select few countries which have similar facilities,” said Das, adding this more direct route of investment is continuation of previous measures to improve retail participation in government bonds.

Previously, retail investors have had access to the G-sec market via non-competitive bidding in primary auction. Exchanges are also permitted to route primary purchases and some segments of retail investors are also permitted in the secondary market.

Details of the facility being termed as ‘retail direct’ will be issued separately, the RBI said.

“The RBI’s move to allow retail participation directly through its platform removes the need for going through intermediaries such as exchanges and brokers to make investments in government securities,” said Nimish Shah, chief investment officer - listed investments at Waterfield Advisors.

“However, the move may not be disruptive because investors look at returns and the government securities interest income is a subject to marginal tax. Further, considering the yields have been falling for the past year, in the short-term investors may rather prefer fixed deposits / mutual funds over G-Secs” Shah said.

Watch RBI Governor Shaktikanta Das' statement here.