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RBI's Retail Direct Scheme: Everything you need to know


19th Jul 2022

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How does the government gather money for all the developmental work going around? The first instinct would be, "it's the government; they can print money." Unfortunately, that's not how things work, and if the government started printing money to their convenience, we'd be doomed. So, the only options are spending the revenue generated through taxes or taking debt from the public. While the former caters to many needs, it may fall short in certain places, and public debt is the only viable alternative.

What is RBI retail direct?

The Retail Direct program is a one-stop-shop that enables individual investors to participate in government securities. Under this program, Individual Retail Investors may create a "Retail Direct Gilt (RDG)" Account with the RBI for Gilt Securities.

Why RBI retail direct?

Before the GOI introduced this program, a retail investor looking to invest in government securities had to do so through banks or funds. This investing route comes with additional charges and thus lower interest rates. The scheme also allows the investor to trade the securities on a secondary market.

Different Securities offered

  • T-Bills - Treasury Bills, better known as T-bills, are short-term loans taken by the government. These bonds are issued in three tenors, 91-days, 182-days, and 364-days.
  • G-Secs - G-secs stand for government securities. These are typically long-term debts, ranging from one year to several decades.
  • SDLs - State Development Loans are long-term debt instruments that various state governments issue. Since the state governments cant issue T-bills, the shortest tenure debts are those maturing in a year at least.
  • SGBs - Sovereign Gold Bonds are the government-backed way of investing in Gold. Although available through other trading platforms, maintaining accounts on these platforms is in itself a costly affair.

The Upsides

  • Liquidity - Government securities are customarily associated with a lack of liquidity. However, the presence of secondary markets challenges this notion by giving the investors an option to trade the stakes in the open market.
  • Risk-free - The government itself backs the securities offered through this scheme, and the only way one's capital is at risk is if the government defaults, which has never happened in history!
  • Affordability - The securities can be invested starting from just ₹10,000, and the SGBs can be supported starting as little as 1gram.
  • Buying SGBs anytime - The government declares the SGBs at intervals for a particular period. However, an investor can purchase them at any time in the secondary market. Although available on different trading platforms, this facility also requires one to pay certain annual charges in many cases.

Things to look out for

  • Liquidity - "You live by the sword; you die by the sword." The scheme's most significant upside is also becoming one of the biggest hurdles to its success. The scheme lacks common knowledge among investors, which has been a substantial reason for their low turnout on the platform.
  • Tax implications - Unlike debt funds, the scheme offers no tax incentive for long-term investors. The credited accrued interest is subject to tax per the investor's tax slab with no exemptions.

Before ending the read, however, let us do a quick comparative analysis between the debt funds and investing through RBI retail direct.

Factors Debt Funds RBI Retail Direct
Risk Profile These funds often have a minor portion of the portfolio allocated to equity. This increases the risk profile slightly. These are completely risk free. Even the SGBs offer a de facto capital protection as gold has never remain stagnant or fell for a straight period of 8 years.
Liquidity Can be redeemed easily Although they can be sold in secondary market, the number of investors currently using the platform is profuse. This may be a challenge to the liquidity.
Income Stream Rarely credit the accrued interest in form of dividends Most of the securities credit the accrued interest at regular intervals
Charges They charge expense ratios No charges
Tax Implications Taxes can be paid on Short term capital gains or Long term capital gains All taxes are paid on the credited interest per the investor's income tax slab

We'll be back with some more finformation!

Till then, Stay Safe! Invest Safer!


Q. Do T-bills also credit interest to the investors?

Ans. The T-bills although do not provide an interest, are offered at a discount and are sold at the face value on the maturity. This difference is the investor's gain.

Q. What is NDS-OM?

Ans. Negotiated Dealing System - Order Matching is a secondary market offered by the RBI for trading government securities. This challenges the lack of liquidity in government bonds, one of the biggest deal-breakers.

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Made with ❤️ in India