All
About RBI's (Reserve Bank of India) Direct Retail Scheme
Until now the government security ( g-sec) market was dominated by institutional
investors such as banks, mutual fund houses, and insurance companies. These
entities trade in lot sizes of Rs 5 crore or more. In order to make access to
ordinary retail investors, recently govt launched The RBI Retail Direct Scheme .
The RBI Retail Direct Scheme is a facility or platform for small individual investors to
invest (buy /sell) in the Govt.security scheme directly that facilitates retail (individual) investors to purchase and sell government
securities (G-sec) on the primary and secondary markets over the internet. It
provides ordinary investors with a new way to invest directly in securities issued by the Central and state governments
These small investors can now invest in G-Secs
by creating a gilt security account with the RBI,. The new account will be
known as the Retail Direct Gilt (RDG)
Account.
Before we try to know full details
about the Scheme, we should first know what is Govt. Securities and is it
beneficial for you to buy it.
What is G-Sec.
(Govt Securities)
When Govt expenditure exceeds its revenues, the government
issues securities, popularly known as G-secs or government bonds to raise
funds, which is utilised to cover the deficit.
These are debt instruments issued by the Central or State
government to borrow money from market and
usually carry Fixed Interest Rate that you get on maturity.
These are of two types
, short or Long term
Short terms :
which mature in 91 days, 182 days, or 364 days, and
Long Terms
which mature anywhere between 5 years and 40 years.
Examples of Govt Securities are :
Treasury Bill (T-Bill) , Bonds etc.
Treasury Bills are short terms while bonds are of long
terms
Should you buy :
Most people while taking investment decision would think
about equities (co. share) , Bank fixed deposits, mutual funds, real estate
(land, house, flat) or gold Very few
consider investing in government securities or bonds. However, investing in
government bonds can be an effective way of diversifying your investments and reducing risk.
the government pays a fixed interest rate on the bonds and
by remaining invested in government bonds until maturity, you can derive
maximum yield. One can also consider investing in government bonds to diversify
his/her portfolio as these are largely stable and perform well when other asset
classes are under pressure.
Interest rates in different Govt Securities are usually 6
to 12% depending on tenures.
Returns on these bonds are not affected by ups and downs in capital market , however there are
some credit risk in investment , if Govt reduces interest rate then some risk
is there in pre mature withdrawal , if you remain invested till maturity ,
there is very less chance of risk
Such bonds are guaranteed by Govt so it is super secure.
Disvantages
Interest rate is usually low , between 6 to 12% . Higher Interest rate is only when tenure of
Govt Securities is high like 10 to 20 years.
And such low rate of interest usually does not justify inflation
( loss in purchasing power of Money
For example a 8% 7 years govt security/bond of Rs. 10000
will Guaranteed return you Rs. 10800
after 7 years . Consider Value of Rs. 10800 after 7 years???
So the investment kin Govt Securities is good for Conservative investors who do want
to take any risk at all
Taxation Effect :
Return is Taxable when received unless mentioned as Tax
free. So post Tax return will be less than 8%
What should you
do ;
If you want to diversify your portfolio with no risk
investment , you can invest in Govt Securities
There are Two ways to Invest in Govt Securities :
1.
Via
Mutual Fund ,
Specially named as Govt Securities Fund or
Guilt Fund, Such as Aditya Birla sunlife
Govt Security Fund, DSP G-sec Fund, ICICI Govt Security Fund, SBI Bond funds
etc. These mutual funds primary invest in Govt Securities and bonds and are
less risky , less volatile (and consequently gives less returns)
2. Via RBI Retail
Direct Scheme .
If you do
not want to invest in Govt Securities through Mutual Funds , You can now Directly
buy from RBI’s web site. RBI has recently launched a scheme called Retail Direct scheme for
Individual Investors to buy Govt Security. For this you have to undergo
following process :
- Visit RBI web site rbiretaildirect.org.in/
- Register yourself & open an account .
The new account will be known as the
Retail Direct Gilt (RDG) Account.
- After
opening your account there you can buy or sell Govt securities and Bonds
- Detail
process is given on that site rbiretaildirect.org.in/
Benefit of Direct Investment
There is no Fee attached , No expenses are charged by RBI
. Rates may be Low then secondary market like Mutual Fund.
Conclusion :
If you do not want hassles of investing through RBI Retail Direct Scheme , you can invest through Guilt Funds – which
invest primary in Govt Securities only.
Some Popular Guilt Funds are :
SBI Guilt Funds , ICICI Guilt Funds,
Aditya Birla Govt Security Funds , DSP Guilt funds etc.
All these guilt funds have given around 8 to 9% returns
consistently and not much effected by Volatility of Market .
