RBI's New Retail Direct Scheme

Why in the News
The ‘RBI Retail Direct’ scheme, which is a one-stop solution to facilitate investment in Government Securities by individual investors is being issued on November 12th, 2021.
Background:
As part of continuing efforts to increase retail participation in government securities, ‘the RBI Retail Direct’ facility was announced in the Statement of Developmental and Regulatory Policies dated February 05, 2021, for improving ease of access by retail investors through online access to the government securities market – both primary and secondary – along with the facility to open their gilt securities account (‘Retail Direct’) with the RBI.

What comes under government securities?

Government securities, for the purpose of this scheme, mean securities issued in form of stock by credit to SGL/CSGL account maintained with RBI as defined under Section 3(iii) of Government Securities Act 2006.
These include:

-Government of India Treasury Bills;

-Government of India dated securities;

-Sovereign Gold Bonds (SGB);

-State Development Loans (SDLs).

Scope of the Scheme:

‘RBI Retail Direct’ is a comprehensive scheme that provides the following facilities to retail investors in the government securities market through an online portal:

i) Open and maintain a ‘Retail Direct Gilt Account’ (RDG Account)

ii) Access to primary issuance of Government securities

iii) Access to NDS-OM

Possible benefits of this Scheme:

With the introduction of retail direct, a common man can directly take a position in government securities (g-sec), considered to be the safest asset class a sovereign can offer.
In the February policy, RBI governor Shaktikanta Das had described the initiative as a “major structural reform”, and experts had agreed.
In fact, India will only be the third nation in the world after the United States and Brazil where retail participants can take direct exposure to the government bond market.
The scheme will offer a safe, simple and direct channel for investment in government securities.
The individual investor will have to open a securities account with the RBI through an online portal.
The same portal will allow him to bid in primary auctions and buy and sell securities in the market.
No fee will be charged for any services, and payments can be made through internet banking as well as UPI.
Investor support facilities will be available through telephone, email as well as online.
This cuts down the need for investors seeking the safety of their money, and gilt returns are now comparable, or even better than bank deposit rates.

Challenges:

For trading purposes, gilt investments can still be a little complex for an ordinary investor, feels experts, and therefore, dedicated experts handling mutual funds are hard to replace.
While the intentions of RBI are noble, awareness about the g-sec market is low.
From a credit quality perspective, retail direct is comparable to gilt funds, or target maturity funds with a portfolio of gilts and state development loans.
The asset under maturity of gilt funds is much on the lower side anyway.
So, depending on how fast the awareness spreads, this scheme will take off or just be there as a facility.