One of the major playing arenas for the investors is the capital market – a market for equity and debt (bonds). This is the market where a company and government can raise funds for their activities – to expand a line of business or enter into a new business, or for other capital projects – on a long-term basis.
Companies may decide either to raise money by issuing equity on the stock market or may issue debt in the form of corporate bonds. Similarly, governments may issue debt in the form of government bonds. Notably, governments do not usually issue equity.
Within the capital market we have a primary market and secondary market. When a company or a government first places its securities in the market for sale, then the market is known as the primary market. Contrary to this, when the securities, equities or debt instruments are already available in the market and are being traded, then the market is known as the secondary market.
The capital market is a part of financial market which also covers the money market. The money market is yet another wing of the financial market where funds are raised on a short-term basis through debt securities like treasury bills, commercial papers, etc. Main players in money markets include banks among others. The companies mostly take routes of money market money on a daily basis to strike an appropriate level of liquidity ‘without falling short and needing a more expensive loan or without holding excess funds and missing the opportunity of gaining interest on funds.’
From an economic point of view, development of a country is reflected through the development of its securities market. We all know, production plays a vital role for the revival and conducive growth in any economy. Production of output depends upon material inputs, human inputs, and financial inputs. The proper synchronization of these inputs encourages the economic growth process and this leads to the well-being, and improved standard of living, of the people. It’s here the investors in the securities form the backbone of the economic development of a country.
Meanwhile, the government on November 12 launched a scheme for retail investors to strengthen the securities market. The scheme, Retail Direct Scheme, was thrown open for retail investors for the first time in the history of the capital market by the Prime Minister. The scheme seeks to increase participation of retail investors in the government securities market which has so far been dominated by institutional investors. Launching the scheme, the Prime Minister said it will give strength to the inclusion of everyone in the economy as it will bring in the middle class, employees, small businessmen and senior citizens with their small savings directly and securely in government securities.
In the words of the Reserve Bank of India governor, India is setting an example in democratisation of the government securities market by throwing open the government securities market open to retail investors.
What is this Retail Direct Scheme?
The scheme is a portal that facilitates investment in government securities by individual investors. Individuals can open gilt securities account—retail direct gilt (RDG) account—with the RBI on www.rbiretaildirect.org.in.
Opening an RDG account will allow individuals to buy Government securities directly in the primary market (auctions) as well as buy/sell in the secondary market. For the retail investor, Government securities offer an option for long term investment. Retail investors defined under the scheme can register and maintain an RDG account. Investors need to have a Rupee savings bank account maintained in India- Permanent Account Number issued by the income tax department- Any officially valid document to meet know-your-customer norms- Valid email id and registered mobile number.
What are the advantages for retail investors under the scheme?
Investment in government securities in the domestic market context are risk free and carry no credit risk. In this investment, the yields are decent for longer duration. The government securities (G-sec) offer the prospect of capital gains when the interest rates are moderate. One, however, must be conscious of market risks that could result in losses in case the interest rate cycle reverses. It also offers reasonable liquidity. With the introduction of Retail Direct Portal, retail investors can now participate easily in the primary and secondary market.
Besides, investments in government securities would help in portfolio diversification and consequently reduce risk for retail investors. Notably, Retail Direct Account is completely free of charge and does not involve any intermediary. It would reduce overall transaction charges for individual investors in terms of the charges which they are otherwise required to pay for investing through aggregators or taking indirect exposure through mutual funds.
What are the kinds of Government securities that one can invest in through the Retail Direct platform?
The kinds of government securities in which one can invest include Government of India Treasury Bills (T-Bills), Government of India Dated Securities (dated G-Sec), State Development Loans (SDLs).
Who can open a Retail Direct Gilt (RDG) account?
Any retail investor in individual capacity can open an RDG account. The individual is required to have a rupee savings bank account maintained in India, Permanent Account Number (PAN), any officially valid document (OVD) for Know Your Customer (KYC) purpose, a valid email id and a registered mobile number.
Non-Resident retail investors are also eligible to invest in Government Securities under Foreign Exchange Management Act, 1999.
Notably, an individual can open only one RDG account. The second holder in a joint RDG account may also open an individual RDG account.
Why are bank account details required to open an account under the scheme?
The funds will be settled through this rupee savings bank account in case of any purchase/sale. Periodic coupon payments and redemption amount of the invested security will also be credited to this bank account.
So, it’s important to link your bank account to an RDG account. You can either upload a picture of your bank account’s cancelled cheque from where the system will automatically read the required details or enter the bank account details yourself. The system will then transfer a token amount to your account. Confirming this token amount on the next screen will lead to automatic verification and linking.
What are the facilities available on the RBI Retail Direct Portal?
The RBI Retail Direct Online Portal will facilitate the following:
– Buying Government securities through primary auctions (non-competitive segment only).
– Buying and selling Government securities in the secondary market.
– Buying and selling Sovereign Gold Bonds (SGBs) in the primary and secondary market.
– Investor services such as account statement, nomination facility, pledge/lien, gift transactions, grievance redressal, and managing profile like contact details etc.
Whom can one contact for queries related to the Scheme?
In the context of the scheme, one can reach RBI in three ways:
– Toll free phone number: 1800 267 7955 (between 9 am to 7 pm on any working day).
– E-mail id: support@rbiretaildirect.org.in
– Raise a request on the Retail Direct portal.
There is a User Manual in the Help section of the Retail Direct Portal to seek additional details on the subject.
(Inputs from the RBI website)
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author. The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK