The Reserve Bank of India (RBI) announced the ‘RBI Retail Direct’ scheme, a one-stop solution to facilitate investment in government securities (G-secs) by individual investors.
GS-III: Indian Economy (Growth and Development of Indian Economy, Mobilization of resources)
Dimensions of the Article:
- About the ‘RBI Retail Direct’ scheme
- Why was this needed?
- Benefits of the RBI Retail Direct Scheme
About the ‘RBI Retail Direct’ scheme
- Under the scheme, retail investors [Retail Investors = individuals / non-professional investor who buys and sells securities or funds that contain a basket of securities such as mutual funds and Exchange Traded Funds (ETFs)] will have the facility to open and maintain the ‘Retail Direct Gilt Account’ [Gilt account is debited or credited with treasury bills or government securities instead of money] (RDG Account) with the RBI.
- It is a one-stop solution to facilitate investment in G-secs by individual investors. RBI seeks to democratize the ownership of government debt securities beyond banks and managers of pooled resources such as mutual funds.
- RDG accounts can be opened through an online portal provided for the purpose of the scheme. The online portal will give registered users access to primary issuance of G-secs and access to Negotiated Dealing System-Order Matching system (NDS-OM).
Why was this needed?
- The G-sec market is dominated by institutional investors which are large market actors such as banks, mutual funds and insurance companies.
- So, there is no liquidity in the secondary market for small investors who would want to trade in smaller lot sizes because institutional investors trade in lot sizes of Rs 5 crore or more.
- There is no easy way for them to exit their investments. Thus, currently, direct G-secs trading is not popular among retail investors.
Benefits of the RBI Retail Direct Scheme
- It will make the process of G-sec trading smoother for small investors therefore it will raise retail participation in G-secs and will improve ease of access.
- This measure together with relaxation in mandatory Hold To Maturity (securities that are purchased to be owned until maturity) provisions will facilitate smooth completion of the government borrowing programme in 2021-22.
- Allowing direct retail participation in the G-Sec market will promote financialisation of a vast pool of domestic savings and could be a game-changer in India’s investment market.
-Source: The Hindu