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

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.

Why was it necessary to introduce this scheme?

The RBI said the scheme would help “broaden the investor base and provide retail investors with enhanced access to the government securities market — both primary and secondary.” It said the scheme was a “major structural reform placing India among select few countries which have similar facilities”. This scheme, among others, would “facilitate smooth completion of the Government borrowing programme in 2021-22”.

The Government intends to borrow up to ₹12 lakh crore this year ending March 31, 2022. The significant spike in borrowing — that is expected to spur infrastructure and social funding — follows a steep decline in the economy last fiscal. The Union Government, hence, wishes to broaden the base of investors signing up for bond purchases. The added benefit of the Government accessing retail investors could be the freeing up of room for companies to mop up funds from institutional investors; funds that may otherwise have been cornered by the government to fund its expenses.

How can individuals access G-Sec offerings?

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.