Explained | What is the Retail Direct Scheme for investors in government securities?

How will the new scheme allow small investors to buy or sell government securities? Why were the three different ombudsman schemes repealed?

The RBI had in February announced proposals for the Retail Direct Scheme for investors in government securities and the Integrated Ombudsman Scheme. The schemes were unveiled by the Prime Minister on November 12.

Under the Retail Direct Scheme, small investors can now buy or sell government securities (G-Secs), or bonds, directly without having to go through an intermediary like a mutual fund. It is similar to placing funds in debt instruments such as fixed deposits in banks. However, the same tax rules apply to income from G-Secs. But, with the Government being the borrower, there is a sovereign guarantee for the funds and hence zero risk of default. Also, government securities may offer better interest rates than bank fixed deposits, depending on prevailing interest rate trends. For example, the latest yield on the benchmark 10-year government securities is 6.366%. India’s largest lender, State Bank of India, offers 5.4% on deposits of less than ₹2 crore for a tenure of five to 10 years.

Investors wishing to open a Retail Direct Gilt account directly with the RBI can do so through an online portal set up for the purpose of the scheme. Once the account is activated with the aid of a password sent to the user’s mobile phone, investors will be permitted to buy securities either in the primary market or in the secondary market. The minimum amount for a bid is ₹10,000 and in multiples of ₹10,000 thereafter. Payments may be made through Net banking or the UPI platform. Retail participants would be bidding for the securities under the “non-competitive segment of primary auctions of Government Securities and Treasury Bills”, the RBI said in a November 12 notification.