How Can Retail Investors Invest in Government Securities?

Do you want to invest directly in government securities? Are you looking for a fixed-income investment to attain your financial goals? You can invest directly in government bonds through RBI’s Retail Direct Scheme. It offers retail investors or non-professional individual investors opportunities to invest directly in Government Securities (G-Secs) in a hassle-free way. Moreover, you can invest in government bonds through the Retail Direct Scheme (RDS) to protect capital and earn steady returns. How can retail investors invest in government securities?

What is the RBI Retail Direct Scheme?

Investors can directly purchase Government of India dated securities, treasury bills, state development loans and sovereign gold bonds (SGBs) through RBI’s Retail Direct Scheme. It helps retail investors put money in Central and state government securities in primary and secondary markets. 

RBI’s Retail Direct Scheme helps retail investors invest directly in G-Secs across investment horizons for regular cash flows through an online portal. Moreover, it offers risk-free interest, thereby providing a suitable investment avenue for conservative investors. 

How can retail investors invest in government securities?

Retail investors may invest a minimum of Rs 10,000 in Central and State Government Securities and treasury bills by opening a Retail Direct Scheme Account with RBI. You will have to open your account through the online portal https://rbiretaildirect.org.in to buy and sell government securities. 

You can open only one account under RDS to invest in government securities. Before commencing your investment, you must complete your KYC (Know Your Customer) requirements with relevant identity and address proofs. 

You must have a rupee savings bank account maintained in India, PAN issued by the IT Department, and a registered mobile number to open your account under RDS. Moreover, NRIs who meet the requirements of the Foreign Exchange Management Act, 1999, can invest in government securities through the Retail Direct Scheme. 

People can invest in government securities under the Retail Direct Scheme through savings bank accounts. Moreover, you don’t incur any fees for opening and maintaining this account with the RBI. 

Investors can easily invest a minimum amount of Rs 10,000 directly in government securities through the RDS. Moreover, you can invest a minimum of one gram of gold in Sovereign Gold Bonds through this account. 

You can invest a maximum of Rs 2 crore per bid in Government of India dated securities through the Retail Direct Scheme. However, the maximum permissible investment for individuals in Sovereign Gold Bonds is 4 kg per financial year. 

Should you invest in government securities through RBI’s Retail Direct Account? 

You can invest in government securities through the RBI’s Retail Direct Scheme if you are a conservative investor. Earlier, retail investors had to invest in government securities only through gilt funds. It is a debt fund that invests mainly in government securities and is ideal for an investment horizon of three to five years. 

Many retail investors want to invest in government bonds but have to opt for the gilt fund route. However, through RBI’s Retail Direct Scheme, investors easily access government securities with tenure ranging from 1-30 years in a risk-free environment. 

However, investors who fall into higher-income tax brackets may not invest in government securities through RDS. It offers post-tax returns of around 4.45% for individuals in the highest income tax bracket. You can invest in small saving schemes such as PPF or NSC, which offer higher post-tax returns if you fall into higher-income tax brackets. 

The RBI Retail Direct Scheme received an encouraging response with over 20,000 registrations after its launch on November 12, 2021. However, many small investors do not understand the benefits of investing in government securities. RBI will have to educate small investors through education programs on government securities if it wants to tap more investors under RDS. In a nutshell, the Retail Direct Scheme can draw small investors into government securities over time.

For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in