Common Man Can Now Directly Invest In Treasury Bills, Government Securities, Without Paying Any Distribution Charges.
Much awaited RBI scheme for retail investors is now live after PM Modi has given it a green signal. RBI Retail Direct Scheme allows retail investors to trade in government securities online both in the primary and secondary markets. Investors only need to open a gilt securities account called Retail Direct Gilt (RDG), which will be linked to their savings bank accounts. Investors will have the option to directly purchase financial products such as treasury bills, dated securities, sovereign gold bonds (SGB), and state development loans (SDLs).
What’s In It For Retail Investors?
The biggest advantage of the scheme is that there are no fees for opening, maintaining, access and transacting in the account. Investors can choose specific bonds as per their cash flow requirements giving them a degree of flexibility. Government bonds offer attractive yields and RBI is also likely to approach the Centre to secure tax benefits for retail investments under the Scheme. It is expected that it will also trigger a pricing war among the distributors which will reduce the overall industry brokerage.
The Glitch In The Matrix
Investors still must bear the payment gateway fees. System navigation is a bit complicated for senior age bracket Individual investors. It is even more complex to transact bonds in the secondary market intended to be sold before maturity.
In most of the guaranteed plans, the income does not start flowing immediately, so there is a negative impact on liquidity. Most small savings instruments also carry a lock-in which deters short-term investors.
There is no tax relief when investing directly in government bonds, while investors in debt mutual funds enjoy dual tax benefits. This creates an uneven advantage in favor of mutual fund players.
Public Response To The Scheme And Advisors Caution
The scheme has been receiving a positive response from individual investors with more than 32,000 registrations done within 6 days from the launch date. Government securities are still considered the safest investment. Portfolio advisors are, however, cautioning investors that they should remain aware of potential mark-to-market losses due to the interest rate risk in an upward cycle.
Overall, the Retail Direct Scheme needs more awareness among senior citizens who can benefit from it. Also, the tax break is needed soon to bring parity with existing savings plans, including mutual fund debt schemes.