RBI Notifications

Retail Direct Scheme for G-Secs


From UPSC perspective, the following things are important :

Prelims level: G-Secs

Mains level: Not Much

The RBI has announced a scheme under which retail investors will be allowed to open retail direct gilt accounts (RDG) directly with the central bank.

Retail Direct Scheme

  • The scheme is a one-stop solution to facilitate investment in government securities (G-secs) by individual investors.
  • Under RDG schemes, accounts can be opened through a dedicated online portal, which will provide registered users access to primary issuance of government securities and to NDS-OM.

What is a gilt account?

  • A “Gilt Account” means an account opened and maintained for holding Government securities, by an entity or a person including ‘a person resident outside India’ with a “Custodian” permitted by the RBI.

About Government Securities

  • These are debt instruments issued by the government to borrow money.
  • The two key categories are:
  1. Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days, and
  2. Dated securities – long-term instruments, which mature anywhere between 5 years and 40 years

Note: T-Bills are issued only by the central government, and the interest on them is determined by market forces.

Why G-Secs?

  • Like bank fixed deposits, g-secs are not tax-free.
  • They are generally considered the safest form of investment because they are backed by the government. So, the risk of default is almost nil.
  • However, they are not completely risk-free, since they are subject to fluctuations in interest rates.
  • Bank fixed deposits, on the other hand, are guaranteed only to the extent of Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Retail investors and G-Secs

  • Small investors can invest indirectly in g-secs by buying mutual funds or through certain policies issued by life insurance firms.
  • To encourage direct investment, the government and RBI have taken several steps in recent years.
  • Retail investors are allowed to place non-competitive bids in auctions of government bonds through their Demat accounts.
  • Stock exchanges act as aggregators and facilitators of retail bids.

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