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:
- Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days, and
- 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.
- 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.