RBI Retail Direct Scheme

This article talks about all the things you need to know about RBI Retail Direct Scheme.

Before the introduction of this scheme, if retail investors wanted to invest in government securities one option was through debt mutual funds. Under this option, the choice of securities to be bought or sold was not of the investor but of the fund manager. In July 2021, the RBI announced the Retail Direct Scheme, under which retail investors can directly invest in government bonds. Retail investors who are eager to avail the advantage of this scheme, must open and manage a Retail Direct Gilt Account (RDG Account) with the RBI. This account provides investor access to both primary and secondary bond markets. Some of the popular government securities that individuals can invest in through this account are Government of India Treasury Bills, Sovereign Gold Bonds (SGB), State Development Loans (SDL), and Government of India dated securities. RBI Retail Direct Scheme is a comprehensive scheme that provides a wide range of facilities to retail investors in the government securities market through an online portal. These facilities include:

  • Opening and managing Retail Direct Gilt Account.
  • Access to the primary issue of Government securities and bonds.
  • Access to NDS-OM (Negotiated Dealing System – Order Matching System). It refers to RBI’s electronic order matching system for trading in Government securities in the secondary market.

Eligibility for RBI Retail Direct Scheme

  • Any retail investor can register under this scheme and open a Retail Direct Gilt Account provided they have the following:
  1. Saving Bank Account maintained in India
  2. Valid PAN card
  3. Any officially valid documents for KYC purpose
  4. Valid e-mail id
  5. Registered mobile number
  • Non-resident retail investors eligible to invest in Indian Government securities under Foreign Exchange Management (FEMA) Act, 1999 are also eligible to invest under the RBI Retail Direct scheme.
  • Retail investors can also open a joint gilt account with any other individual eligible for this scheme.

Procedure to open Retail Direct Gilt Account

The process to open an RDG account under this scheme is very simple. Investors need to undertake the following steps:

  • Go to the online portal and register by filling up the registration form.
  • The portal will send an OTP on your registered mobile number and e-mail id. You need to authenticate using the OTP. After authentication, submit the form.
  • The investor must adhere to the KYC guidelines at the time of registration.
  • Your RDG Account will be opened on successful registration and all relevant details regarding online portal access shall be conveyed to you through SMS and mail.

Services offered by Retail Direct Gilt Account

Once you open an RDG account, you can avail yourself of a variety of services offered under the Retail Direct Scheme. These services include the following:

  • Investment in G-securities: Buying and selling Government securities on both primary and secondary markets.
  • Account Statement: The online portal delivers the investor’s transaction history and the balance positions of securities holdings in the investor’s RDG Account. All the transactions and other alerts will be sent to you via SMS or mail.
  • Provision for Nominations: This scheme provides a nomination facility to investors. Investors have the option to fill up and upload the nomination form in the prescribed format, which must be signed by the nominee. A maximum of two nominations is allowed for an investor.
  • Pledges and Liens: Securities held under this scheme in RDG account by the investors are available for pledge or lien. Thus, investors can take a loan by offering the securities as collateral.
  • Gifts Transactions: The online portal provides an additional facility to gift your government securities to other retail direct investors.
  • Grievance Redressal: Any kind of query, doubts, or grievances related to this scheme can be raised on the online portal which will be handled at the earliest by the Public Debt Office (PDO) of the RBI.

Importance of Retail Direct Scheme

  • This scheme can lead to a vast pool of domestic savings been directed towards government securities. Direct retail participation could be a huge push for India’s debt market.
  • This scheme facilitates investors with the ease of transacting in government securities that carry almost negligible default or credit risk. Thus, it provides a safe investment option to the investors.
  • This scheme also facilitates small lot-size transactions which may help increase the participation of retail investors in government securities and increase liquidity in the secondary market.
  • This scheme provides a wide range of services and facilities to investors. Investors can use these facilities to create and manage their portfolios of Government securities and other sovereign bonds.
  • This scheme has also introduced non-competitive bidding in primary auctions. This bidding procedure is designed to encourage the participation of non-institutional small buyers in the primary market.
  • This scheme also permits specific retail segments in the secondary market, thus increasing the ease of trading in these securities and enhances their liquidity.

Precautions before Investing in Government Securities

Retail Direct Scheme is beneficial for those investors who prefer to manage their own Government securities portfolio. For this, investors need to have a good understanding of the Government securities market. Investors should always consider the risk associated with these securities. These securities may not carry any credit or default risk but are prone to interest rate risk as bond prices fall with increasing rates of interest. Investors should also actively track the interest rates and decide about the maturity of the securities accordingly. Investors who lack the knowledge and skills to track and monitor government securities markets are advised to invest in these securities through indirect routes like mutual funds, insurance, pension schemes, and the like.